Question : Table 14-2 Table 14-2 shows the payoff matrix for Wal-Mart and : 1387869

Table 14-2

Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.

21) Refer to Table 14-2.  Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

A) No, it is not a Nash equilibrium because each firm can do better by charging the high price. The Nash equilibrium occurs when each firm charges the high price and earns a profit of $10,000.

B) No, the current situation is not a Nash equilibrium; it is a dominant strategy equilibrium. There is no Nash equilibrium in this game.

C) No, the current situation is not a Nash equilibrium. The Nash equilibrium for each firm is to have the other charge a high price and for the firm in question charge a low price.

D) Yes, the current situation is a Nash equilibrium.

22) Refer to Table 14-2. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

A) Yes, the firms can implicitly collude and agree to charge a higher price.

B) No, there is no incentive for each firm to consider any other strategy.

C) No, any other strategy hurts consumers.

D) Yes, each firm can implicitly agree to increase output and not to deviate from a low price.

23) Refer to Table 14-2.  Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

A) to signal to each other not to charge below the current low price

B) to signal to each other that they will not hesitate to initiate a price war

C) to signal to each other that they intend to charge the high price

D) to signal to each other to share the market equally

24) Refer to Table 14-2.  Suppose pricing PlayStations is a repeated game in which Wal-Mart and Target will be selling the game system in competition over a long period of time. In this case, what is the most likely outcome?

A) a noncooperative equilibrium in which each firm charges the high price

B) a cooperative equilibrium in which each firm charges the high price

C) a noncooperative equilibrium in which each firm charges the low price

D) a cooperative equilibrium in which each firm charges the low price

25) What is a second-price auction?

A) an auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the second highest amount bid

B) an auction in which the bidder who submitted the second highest bid is awarded the object being sold

C) an auction in which the bidder who submitted the highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid

D) an auction in which the bidder who submitted the second highest bid is awarded the object being sold and pays a price equal to the average of the highest and second highest amount bid

26) What is the dominant strategy in a second-price auction?

A) bidding below one’s true value

B) bidding above one’s true value

C) bidding one’s true value

D) There is no dominant strategy.

27) In most business situations where firms compete, often they can escape the prisoner’s dilemma and reach the most profitable outcome. Which of the following is a reason for this?

A) Firms engage in aggressive advertising to overcome the barriers to loyalty.

B) Most games are one-shot games so firms learn from their mistakes.

C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate.

D) Firms are constantly improving their products and anticipating changing consumer tastes.

28) Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor? 

A) The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact.

B) The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.

C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion.

D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

29) In an oligopoly, firms can increase their market power by

A) selling to buyers who have market power.

B) pursuing dominant strategies.

C) colluding to set prices.

D) undertaking heavy advertising expenditure.

30) If the painting firms in a city sign a contract outlining a pricing plan, they are involved in

A) price competition.

B) a legal form of business contract in the United States.

C) collusion.

D) price regulation.