Microeconomics – 6. Monopoly and Monopolistic Competition

  1. What is a cartel? Are cartels legal in the United States?
  2. When does a monopoly exist? What is the pricing rule for a monopoly?
  3. Illustrate the dead weight loss of a monopoly.
  4. What is characterized by a natural monopoly?
  5. Why is breaking up a natural monopoly a bad idea?
  6. When the government regulates monopolies, where is price usually set?
  7. Illustrate X-inefficiency. Why is this concept important?
  8. What does dynamic efficiency measure? What is the implication of dynamic efficiency for monopolies?
  9. What are the defining characteristics of monopolistic competition?
  10. Explain the three key differences between oligopoly and monopolistic competition.
  11. Define the four-firm concentration ratio. Why are concentration ratios so important in studying market structure?
  12. Discuss the concepts of strategic interaction and mutual interdependence.
  13. What can we say about the difference between monopolistic competition and perfect competition?
  14. Discuss the relationship between product differentiation and nonprice competition.
  15. Identify four sources of product differentiation.
  16. From the economist’s point of view, product differentiation in general and advertising in particular have what two goals?
  17. For what two reasons is monopolistic competition sometimes called noncollusive oligopoly?
  18. What will profits be for monopolistic competition in the short and long run?
  19. Illustrate the short and long run implications of monopolistic competition for market performance.
  20. Some economists argue that monopolistic competition leads to both excessive advertising and needless brand proliferation. Why?

Microeconomics – 5. Perfect Competition

  1. To what does industry structure refer? What are the major types of industry structures?
  2. What is the central concept driving the structure-conduct-performance paradigm?
  3. Identify several types of market conduct.
  4. How is market performance measured?
  5. What is the most important requirement of perfect competition?
  6. Illustrate the price taker concept.
  7. Define marginal revenue.
  8. What is the relationship between the industry market price and the firm’s marginal revenue in a perfectly competitive industry?
  9. Define a homogenous product.
  10. What does free entry and exit mean? Why is this assumption important?
  11. What does perfect or complete information mean? What does this assumption ensure?
  12. Explain the externalities problem.
  13. Explain the public goods problem.
  14. Why is the market failure concept so important?
  15. Given a market structure of perfect competition, what kind of conduct with respect to pricing can we expect? What is the profit-maximizing rule?
  16. If the profit-maximizing firm always sets its output at a level where marginal cost equals marginal revenue, then what must be true about the firm’s supply curve?
  17. Explain the shutdown condition or shutdown rule.
  18. Illustrate long run equilibrium for the competitive firm. What does price equal and how much economic profits does it earn?
  19. What is the difference between accounting and economic profits?
  20. What is the relationship between price and average total cost in the long run equilibrium?
  21. What is the difference between allocative and productive efficiency?
  22. Explain Pareto Optimality.
  23. Illustrate consumer and producer surplus and the dead weight loss.
  24. A perfectly competitive market yields the most efficient use and allocation of resources, as embodied in productive and allocative efficiency. Yet still, there are several problems. Describe two.
  25. What is the difference between positive versus normative analysis?

Competitive Strategy Chapter 2 Soft Cooperative Commitment

Reputation building is a form of cooperative commitment. ( With soft commitment, companies try to build a reputation as a fair and cooperative player – in the hope that the competitors treat the company in a fair and cooperative way.)
Implementing a most favoured customer clause is a form of cooperative commitment: With such a clause you cannot easily reduce prices in a specific market segment or region in order to fight for market share with a competitor. Once you reduce prices in a specific market segment or region, you have to offer the same price to every other customer and refund the price difference to those who have bought your product earlier on. This is they price wars become very costly and hence less likely. Because the other market participants do no suffer from implementing such a  clause. It is a soft rather than an aggressive commitment.
A self binding commitment is another form of cooperative commitment: You make a binding decision such as particular investment that eliminates those moves/actions which would lead to fierce competition. The other market participants do no suffer from this decision.
The most favored customer clause says that every customer gets the same price. If the company decreases its price, customers who bought the product previously at a higher price get refunded. Hence, if the company decreases its price, e.g. to fight back a certain group of customers with heavy price cuts, the company has to reduce its price also for all the other customers and refund previous buyers. This makes price cuts very expensive and reduces the likelihood of a price war.

Competitive Strategy Chapter 1 Taking Care of Your Competition

In finite games it is clear from the beginning how often the game is repeated and when it ends.
If the outcome of a game is determined by the fact that in the last stage of the game there is no further threat of retaliation, this is called end game effect.
Because of the endgame effect, each period is treated as it would be the last period of the game. This results in the fact that each stage of the game is treated equally and hence the equilibrium of the game is the same in each stage of the game.
Interest Rat <-> Cartel
If the interest rate goes down, future payoffs are less relevant – or put it differently, it is less costly to replicate payoffs in the future with money that is earned today. Hence, the players are less worried about being punished in the future, and deviating is getting relatively more attractive.
Aggressive commitment
* Eliminate unattractive equilibria
* Change simultaneous game to sequential one.
Dominated Strategy
A strategy is dominated if, regardless of what the other player does, the strategy earns the player a smaller payoff than some other strategy. Hence, a strategy is dominated if it is always better to play some other strategy, regardless of what the opponent may do.
A Nash Equilibrium is a set of strategies, one for the player and his/her opponent, that represents the best responses to each other.
Which are the important parts of a game (in context of game theory)?
a) How many players are there and who are they?
b) What are the possible actions these players can opt for?
c) What are the payoffs related to the different combinations of actions?
d) What are the rules of the game?
=> Matrix => Structured Analysis
Nash Equilibrium
* A combination of strategies
* No player can deviate unilaterally from his/her current strategy
* To improve his/her payoffs
A game can contain no Nash Equilibrium at all, one Nash Equilibrium or several Nash Equilibria.