Samsung, Inc., an established and successful firm, secures a bank loan to finance a new facility. The interest rate on this loan is 3 percent. Newburger Co. is a new entrant into the the Omaha restaurant market, an historically risky and volatile market to compete it. It secures a loan to finance its startup costs from the same bank. The rate on this loan however is 11 percent. This is an example of

Samsung, Inc., an established and successful firm, secures a bank loan to finance a new facility. The interest rate on this loan is 3 percent. Newburger Co. is a new entrant into the the Omaha restaurant market, an historically risky and volatile market to compete it. It secures a loan to finance its startup costs from the same bank. The rate on this loan however is 11 percent. This is an example of

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter16: Government Regulation

Section: Chapter Questions

Problem 11E

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4. With an estimated market share of 60%, Atlas is the dominant company and the price leader inan oligopolistic steel industry. The remaining market share is distributed equally between tencompanies. Suppose that one of those ten companies, Norton, attempts to gain market share byundercutting the price set by Atlas.Calculate the “Four Firm Ratio” and Herfindahl-Hirschman Index “HHI” in the above-describedmarket and interpret your answer. What model can best resemble this market? Briefly explainthis model. In your opinion, what will be the effect of Norton’s attempt described above onAtlas’s market share: will it increase, decrease, or not affected at all? Justify your answer.
Panther Airlines (PA) is the only airline that flies several routes. They have a potential competitor, Leopard Airlines (LA) who are considering entering these markets. PA maintains some excesscapacityas an entry deterrent and is eurrently earning $1 Om profit. PA signals that if LA enters these markets, theywill drop their prices. PA's profits will fall to $2m and LA will make a loss of $5m. If PA drops its prices and LA does not enter the markets, PA will earn $3m in profit. If PA were to accommodatethe new entranl, they would each earn $5m profit. i. Draw up the payoffmatrix for this game.ii. Do PA and LA have dominant strategies? Explain your answer.iii. What is the Nash equilibrium? Explain your answer.
13. What would be the likely outcome of the following gaming regarding advertising strategy between China Unicom and China Mobile (each of the two firms may three options of advertising: low, medium and high): China Unicom Budget Low Medium High China Mobile Budget Low $400, $400 $320, $720 $560, $600 Medium $500, $300 $450, $525 $540, $500 High $375, $420 $300, $378 $525, $750
Suppose that GE is trying to prevent Maytag from entering the market for high efficiency clothes dryers. Even though high efficiency dryers are more costly to produce, they are also more profitable as they command sufficiently higher prices from consumers. The following payoffs table shows the annual profits for GE and Maytag for the advertising spending and entry decisions that they are facing. GE MAYTAG Advertising = $12m Advertising = $0.7m Stay Out $0, $30m $0, $35m Enter $1m , $20m $12m, $15 Based on this information, can GE successfully prevent Maytag from entering this market by increasing its advertising levels? What is the equilibrium outcome in this game? Suppose that an analyst at GE is convinced that just a little bit more advertising by GE, say another $2m, would be sufficient to deter enough customers from buying Maytag, thus, yield less than $0 profits for Maytag in the event it enters. Suppose that spending an extra $2m on advertising…
6. Deviating from the collusive outcome Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $0.40 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays and McCovey choose to work together.
QUESTION 14 Note: No referencing is required for short answer questions. The following market is a duopoly populated only by the companies Alphe and Beta. The pay-off matric immediately below shows the combinations of pricing strategies available Assuming Beta has a first mover advantage in a one-shot game, what is lieky to be the Nash equilibrium? Explain your answer Alpha High price Low price High price 250, 200 Beta 200, 100 Low price 50, 150 100, 250 The numbers represent millions of c in profe (The r
6 Samsung wants to prevent Whirlpool from entering the market for high-priced, front-load washing machines. Front-load washing machines clean clothes better and use lesser water than conventional top-load machines. Even though front-load machines are more costly to manufacture than top-loaders, Samsung is nonetheless earning economic profit as the only firm making front-loaders for upscale consumers. Plan the appropriate strategic moves that can be applied by Samsung in order to deter Whirlpool from entering the market of front-load washing machines.
Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 3,085. Case’s share of that market was 11 percent, while Fiat comprised just 7 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase?
11. Suppose there is a duopoly of two identical firms, A and B, facing a market inverse demand of P = 140 – 0.5Q, and cost functions of CA = 20QA and Cg = 20QB respectively. a. Find the Cournot-Nash equilibrium and profit for each firm. b. Suppose that A acts as the leader in a Stackelberg model and B responds. What are the respective quantities and profits of each firm now? Is it advantageous to move first? c. If the firms were able to collude, how much additional profit could they earn if they switch from simple single pricing to perfect price discrimination? d. Graph and label equilibria on the inverse demand.
You are a manager in a market composed of eight firms, each of which has a 12.5% market share. The premerger Herfindahl-Hirschman index (HHI) for this market equals If any two of these firms merge, the post-merger HHI equals Based on this information and the Horizontal Merger Guidelines described in this course, which of the following statements is true? A. A merger like this leads to an unconcentrated market and is typically permitted. B. A merger like this leads to a moderately concentrated market and potentially raises antitrust concerns. C. A merger like this leads to a highly concentrated market and potentially raises antitrust concerns. D. A merger like this leads to a highly concentrated market, is presumed to enhance market power, and will almost certainly be blocked. E. Other/None of the above/Not enough information provided. O
Explain why a large firm like General Mills might use nationalaccount selling to strengthen its relationship with a majorsupermarket chain
3. Consider a two-stage game of R&D competition. The players are firm i and j, each produces with different marginal cost c₁ and cj, where i, j = 1, 2 and i ‡ j. The rules are the firms first invest, denoted by I, and I,, in cost-reducing innovation, they then engage in Cournot competition in the output market by deciding qk, k = i, j and i j simultaneously. The payoffs to the firms are their profits. (a) write out the objective function for firm i and j at the R&D stage and that at the output stage. (b) Assuming that p'(Q) 0 and 1 p"Q+3p' (c) dvi dli < 0. C əqi aci - p"qj+2pi p'(p"Q+3p') даі acj = p"qi+p' p' (p"Q+3p') aQ aci - show, in the R&D stage, that the first-order conditions are = [p' (Q (C₁, c₁)) a daj(crcj) — 1] qi (C₁, Cj) = qp² (Ii, 1, č¡, ēj) = 0. And aci Ij=constant (d) In a closed economy, show that the total differentiation of the national welfare function is dw = −p' (qidqi+q;dqj) — q₁dc₁ — q¡dc; – dl; – dlj. - -