Consider two markets with identical demands. Market 1 consists of four firms with identical market shares. Market 2 consists of one firm with 40% market share, two firms with 30% each. Assuming Cournot competition in both markets, where is market power the greatest? Explain. 

(b) [20 marks] Tourists walking along a half-mile stretch of 23rd Street in New York pass five Starbucks outlets. In Tokyo, 7-Eleven boasts 15 stores within a similar distance of Shinjuku station. (The Economist, May 3, 2014). Does it make any sense for stores to be clustered in this way? 

(c) [15 marks] Consider a price-setting oligopoly with 8 identical firms, all with constant marginal cost c. The firms compete for an infinite number of periods and have the same discount factor δ. Derive the minimum discount factor such that there exists a collusive equilibrium with monopoly pricing. 

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Market Power and Cournot Competition Market Power Comparison Market power refers to a firms ability to influence the market price In Cournot competition firms compete in quantities not prices However ... View the full answer