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Homework answers / question archive / 1) You are the CEO of a firm that is producing trampolines, and you have a competitor that follows your output decision in the market

1) You are the CEO of a firm that is producing trampolines, and you have a competitor that follows your output decision in the market

Business

1) You are the CEO of a firm that is producing trampolines, and you have a competitor that follows your output decision in the market. The firms have the identical cost structures, where c(q) = 50?+ 30, and market demand is ?= 400 ?2?. 
a) Compute price, total quantity, and quantity per firm under Stackelberg. (The quantities are  integers, but the price is not.)
b) Compare the profit for each firm. How much more does the leader make than the follower?

 

2)The article below describes the global container industry. Does the industry most closely resemble i) Stackelberg oligopoly, ii) price leader, iii) Cournot oligopoly, iv) Bertrand oligopoly, or v) monopolistic competition? For each type of market structure: explain why the situation does or does not resemble that market structure. 
"Global container shipping can expect to enjoy less volatility in freight rates, though not necessarily higher rates, in a market marked by slow demand growth and reduced competition for market share amongst liners. 

Following a period of deep consolidation that resulted in just three main alliances - namely THE Alliance, Ocean Alliance, and 2M - the boxship market has reached an oligopoly status, especially on the major trade lanes, according to Lars Jensen, ceo and partner of SeaIntelligence Consulting.

 "We have seen, over the last few years, the emergence of oligopoly and carriers are finally figuring out how consolidation can stabilise the market," Jensen told delegates at the Shipping 2030 Asia conference in Singapore, organised by KNect365 Maritime."

 

3)The article below describes retrospective studies of mergers. Note many companies argue pre-merger that mergers would lead to benefits to consumers through lower prices. Why would such studies be informative? 

New York Magazine Dec 4 2017 "A new House bill Ellison is introducing today would require 
the Federal Trade Commission and Department of Justice to conduct annual retrospective 
studies of how mergers impact prices ... Recent mergers that would qualify for study include ... 
Walgreens' purchase of its competitor Rite Aid, and the merging of chemical companies Dow 
and DuPont, which also make chemical-resistant genetically modified seeds."

 

4) Based on the description below, does the cellular industry most closely resemble i) Stackelberg 
oligopoly, ii) price leader, iii) Cournot oligopoly, iv) Bertrand oligopoly, or v) monopolistic 
competition?  
Verizon Communications (NYSE: VZ) and T-Mobile (NASDAQ: TMUS) exercise tremendous 
market power. Along with AT&T, these telecom stocks form a 5G oligopoly bolstered by high 
fixed costs and the fastest wireless speeds. Over time, T-Mobile has delivered higher investor 
returns on lower pricing for its service. Now, as 5G coverage expands, investors will have to 
determine whether Verizon's network quality and first-mover status will bring higher returns 
than T-Mobile's.

 

5) Two firms - Fancy Groomer and Super Groomer - groom pets in the Pittsburgh market. The 
firms can be thought of as choosing q simultaneously.  The firms have identical cost structures, 
where c(q) = 100 + 40q.  Demand is represented by P = 250 - Q/2, where Q is the sum of 
production by all the firms in the market.  
a) Calculate Fancy Groomer's reaction function.
b) Calculate the equilibrium price and quantity for each firm.
c) What would the new price be if there were five identical firms and all five firms had the 
same cost function as before?

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