Questions and Answers of Industrial Organization Markets

Consider a monopolist that produces for two periods. The demand curves in both periods are qt = 1-pt for t = 1; 2. The marginal costs are c in the first and c – λq1 in the second period. Here, λ
In the recent financial crisis, rating agencies have become a focus of attention. The market has traditionally been dominated by a few big agencies, currently Standard & Poor, Moodys and Fitch.
Equilibrium uniqueness in the Cournot model Consider an oligopoly with n firms that produce homogeneous goods and compete à la Cournot. Inverse demand is given by P (Q) with P? (Q) i (qi) with
Two firms (firm 1 and firm 2) compete in a market for a homogenous good by setting quantities. The demand is given by Q (p) = 2 - p. The firms have constant marginal cost c = 1.1. Draw the two firms
Which model, the Cournot or the Bertrand model, would you think provides a better first approximation to each of the following industries / markets: the oil refining industry, farmer markets,
Reconsider the simple Hotelling model in which consumers are uniformly distributed on the unit interval and firms are located at the extremes of this interval. Now take consumer’s participation
Reconsider the duopoly model with linear individual demand and differentiated products. Show that prfits under quantity competition are higher than under price competition if products are substitutes
Consider a market in which firms 1,……., N set simultaneously capacities for a homogeneous product and afterwards a third party, which observes market demand and the capacity choice of each firm
Suppose two firms, firm 1 and firm 2, operate in a homogeneous good market. The supply of firm i, denoted by qi, is constrained by installed capacity ki, i.e., 0 ≤ qi ≤ ki for i = 1, 2. Firms
Consider a market with two horizontally differentiated products and inverse demands given by Pi (qi, qj) = a - bqi - dqj . Set b = 2=3 and d = 1/3. The system of demands is then given by Qi
Consider a duopoly for a homogeneous product. Firms i = 1, 2 set price-quantity pairs (pi, qi) simultaneously. If at these pairs some consumers are rationed, rationing is assumed to be efficient.
Consider the Cournot duopoly with linear demand P (q) = 1 - q with q = q1 +q2 and constant marginal cost. Firm one has marginal cost of zero. This is commonly known. The marginal cost of
Consider a market in which firms 1,……,N are equidistantly distributed on a circle with circumference 1. Firms have constant marginal costs of production c, which are the same for all firms.
Consider the Hotelling model in which consumers are uniformly distributed on the [0, 1]-interval and firms A and B are located at the extreme points. Firms produce a product of quality si. Consumer
Give five examples of product markets in which product differentiation is likely to be a determining factor for competition in the market place. Give five examples in which the imperfections in
Somewhere far away there exist two villages Apple-castle (A) and Orange-village (B). Each village has its grocery store which sells a particular brand. Suppose that initially connections are bad so
Suppose there are 2 firms in a vertically differentiated market. Consumers buy either one unit of any of the two goods or they do not purchase in the market. If they do not purchase in the market
A consumer with income m who consumes a product of quality si and pays pi obtains the utility sim = 6 - pi. If instead the consumer decides not buy the good, the resulting utility is zero.
Consider the elasticities reported in the table below. The easiest way to think about the advertising elasticities is the following: Total demand consists of demand today and tomorrow. The short-run
Suppose that advertising expenditures are wasteful in the sense that they only redirect existing demand and do not increase consumer utility. Can such advertising be total surplus increasing? Explain.
Consider the linear Hotelling duopoly in which each firm produces a product with a firm-specific undesirable ingredient at zero marginal costs. Suppose that, absent advertising, consumers are not
It is not difficult to navigate in Lonely-Line City: a single street runs from kilometer 0 to kilometer 1 along which 100 inhabitants are equidistantly distributed. [Approximate the consumer
A study by Brynjolfsson and Smith on retail price for books and CDs finds that price dispersion (weighted by market shares) is lower for internet retailers than for conventional retailers. Discuss.
Suppose that two firms with constant marginal costs compete in prices in a homogeneous product market. All consumers have unit demand and a willingness to-pay r. A share α of consumers is informed
Switching costs relax competition and their presence are therefore profit-enhancing. Is this statement necessarily correct? Explain.
Suppose that two software companies launch a new software each. One of them is called COOL, the other GREAT. There is a unit mass of consumers. All of them consider the two software offers as
"Purple Dream" has the monopoly on the production of purple light-emitting diodes (LEDs). It faces geographically separated markets, market 1 and 2. The demands are qA = 1 - pA and qB = 1/2 - pB,
Do you think that price discrimination between rich and poor countries is a feasible solution for giving poor developing countries better access to patented pharmaceuticals? In the answer you should
Some firms incur costs to offer a lower quality: i) Intel dismantled the mathematical coprocessor in some versions of the 486 CPU, ii) IBM has developed software to make some of their printers
A firm sells a product in a market where there are two types of consumers, high and low-valuation consumers. There are equally many of the two types of consumers, and the total number of consumers is
Consider the following version of the lemons problem. There is a continuum of buyers and sellers in the market; the total mass of each group is 1. Each seller has one car to sell and each buyer
Consider a monopolist selling computer software. Software is of high or low quality and is chosen by Nature: quality is high with probability ρ and low with probability 1 – ρ. Consumers can buy
Suppose there are two groups of consumers, group 1 of size α and group 2 of size 2 - α. Consumers have unit demand. Consumers in group 1 have willingness-to-pay for a high-quality good equal to 3
Manufacturers issue warranties for their products, often beyond the mandatory minimum length. However, the warranty is restricted to require consumers to take proper care of the product. Discuss this
Consider a monopolist who sells a single unit of a product that may be of high or low quality. Both events occur with probability 1/2. There are at least two identical consumers. Consumers are
Consider a market in which firms have private information about their quality s ∈ [0, 1]. Quality is drawn from the uniform distribution on the 0-1 interval; this is common knowledge among firm and
Consider as above a market in which firms have private information about their quality s ∈ [0, 1]. Quality is drawn from the uniform distribution on the 0-1 interval; this is common knowledge among
A firm sells a product which may be of high or low quality, sH or sL, respectively. High quality is to occur with probability λ and low quality with probability 1- λ. There is a unit
Consider a monopolist who has one unit of a product. The outside option of not selling the product is c. This product has high quality sH with probability λ and low quality sL with probability 1 -
A firm produces a single product whose quality is either high or low (the firm knows the quality but cannot choose it) and sells it to consumers in each of two periods. The marginal cost of
A firm has either a high quality or a low quality product (the firm cannot choose the quality of its product). The firm faces a continuum of consumers with a total mass one. Each consumer wishes to
A monopoly operates for two periods and produces a homogenous good whose quality is either high or low (the monopoly cannot choose the quality of the good). In the first period, the quality of the
Consider a monopolist who sells a product that contains two attributes A and B. Each of these attributes can be of high or of low quality. Low quality gives utility ui = 0 and high quality utility ui
A business school offers an MBA program with two areas of specialization: finance and marketing. For simplicity, suppose that the school is facing only two potential students: one who is interested
A monopolist sells a product whose quality is unknown to consumers before they buy. It is common knowledge however that the product’s quality, s, is drawn from a uniform distribution on the unit
Consumers wish to buy a product and get a utility 10 if the product is of high quality and is working, and a utility of 4 if the product is of low quality and is working. If a product does not work,
Suppose that, as in Section 11.3.2, each of two firms 1 and 2 provides two components A and B. The offerings of both firms are horizontally differentiated. A consumer of type (θA,
Suppose that a monopolist produces two products, product 1 and product There is a mass 1 of consumers. A share λ of consumers are heterogeneous among each other and are described by their type θ.
A software company sells two applications, noted A and B, that are totally unrelated to one another. The marginal cost of production for each application is constant and is equal to 10. The company
Consider a market with network effects (i.e., a consumer’s utility depends on the number of users of a product) in which each consumer has a willingness to pay equal to xi where xi is the number of
Consider a monopolist providing a product over several periods. The monopolist has constant marginal costs of production of c in each period. Consumers consider to consume one unit of a good in
Suppose that a monopoly retailer has exactly 2 units of a perishable product available. It cannot increase its stock in the relevant period. Customers have unit demand and either a high or a low
Suppose that a supermarket offers a product selection consisting of products A and B. Consumers are willing to pay 10 Euro for one unit of product A and 10 Euro for product B. Consumers have
A monopolist produces a good with constant marginal cost equal to c, c < 1. Assume for now that all consumers have the demand Q (p) = 1 - p. The population is of size 1.1. Suppose that the
Consider a duopoly market with a continuum of homogeneous consumers of mass 1. Consumers derive utility vi ∈ {vH; vL} for product i depending on whether the product is of high or low quality. Firms
Consider two quantity-setting firms that produce a homogenous good and choose their quantities simultaneously. The inverse demand function for the good is given by P = a - q1 - q2, where q1 and q2
Consider two sellers 1 and 2 and a continuum of buyers. Seller i offers product i at price pi and incurs zero marginal cost of production. Buyers are identical and derive utility ui from one unit of
Consider a duopoly market for a homogeneous product in which firms set quantity. Inverse demand is P (q) = 1- q with q = q1 + q2. Firm 1 has marginal costs equal to 0.7. Firm 2 has marginal cost 0.65
Suppose that two identical firms in a homogeneous-product market compete in prices. The capacity of each firm is 3. The firms have constant marginal cost equal to 0 up to the capacity constraint. The
Suppose two firms in an industry face linear inverse demand curves Pi (qi, qj) = 7- qi -qj , i = 1; 2, i ≠ j. Firms compete in a two-stage game; first they set capacity and then they set price
Consider the vertical differentiation model presented in Section 5.3. Suppose that the quality of the product can be described by some number siâˆˆ [s, sÌ…] âŠ‚ R+. Consumers are identified
Consider a Hotelling model in which two firms are located at the opposite ends of the unit interval and serve a unit mass of consumers, who are uniformly distributed on this interval. Each consumer
Consider a horizontally differentiated product market in which firms are located at the extreme points of the unit interval. Firms produce at marginal costs equal to zero. A continuum of consumers of
Consider a Hotelling duopoly in which firms are located at the extreme points of the unit interval and consumers of mass 1 are uniformly distributed on the unit interval. The price of the two
Two firms (1 and 2) produce a homogeneous good at zero marginal cost. They face two types of consumers: a mass N of consumers are informed about the prices, p1 and p2 of the two firms and therefore
Consider a market for a homogenous product with n identical price-setting stores, where n is determined by free entry. Each store has a cost function C (q) = √q, where q is the number of customers
Consider a market for a homogenous product with n identical stores, where n is determined by free entry. Each store has a cost function C (q) = 4 + q, for q ≤ 4 and c (q) = ∞ for q > 4 (in
A monopoly faces a continuum of consumers who are distributed uniformly on the unit interval (i.e., the "numberöf consumers in each given interval is the same). The total mass of consumers is 1.
Consider a country that can be divided into two distinct markets of different sizes: market 1 is small (in the sense that it can only accommodate one firm), while market 2 is larger (in the sense
Consider a horizontally differentiated product market in which two firms are located at points l1 = 0 and l2 = 1 on the line. Firms produce at marginal costs c. There is a continuum of consumers of
Consider the same setting except that firms face a different demand function and that firms set prices at stage 3. Let demand be Qi = 1 - pi- dpj with d > 0 so that products are substitutes
Hong Kong Island features steep, hilly terrain, as well as hot and humid weather. Travelling up and down the slopes therefore causes problems; this has led the city authorities to imagine rather
Consider a duopoly in which homogeneous consumers of mass 1 have unit demand. Their valuation for good i = 1; 2 is v {i} = vi with v1 > v2. Marginal cost of production is assumed to be zero.
Consider a monopolist who sells batteries. Each battery works for h hours and then needs to be replaced. Therefore, if a consumer buys q batteries, he gets H = qh hours of operation. Assume that the
Consider a monopolist with a linear demand curve: q = a - bp, where a, b > 0. It produces at constant marginal cost c and has no fixed cost. Assume that 0 < c < a / b. 1. Find the
Consider the market for shoes in country A. Demand is assumed to be 100 - p where p is the final consumer price. Suppose that country A does not produce shoes and that there are two importers B and