MBA Programme 2007 Period 1 – Jan/Feb PRICES AND MARKETS Core Course PUSHAN DUTT Date: 5th March‚ 2007 Time: 9am – 12noon Duration of the exam: 3 hours Closed-book exam (two A4 sheets allowed). You may NOT use a computer or a PDA Your answers must be in English Write all answers in a separate booklet‚ not on this question paper. At the end of the exam you can find blank pages as “scratch paper” for calculations. This exam is worth 200 points (you get an endowment of 5 points for showing up)
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rival’s competitive responses. In contrast‚ a soft commitment is one that‚ no matter what its competitors do‚ the firm will behave less aggressively than if it had not made the commitment. Thus‚ in a Cournot game a soft commitment will cause the firm to produce relatively less output‚ while in a Bertrand game a soft commitment will induce the firm to charge a higher price than if it had not made the commitment. 2. How are commitments related to sunk costs? A commitment is a difficult-to-reverse
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Essay n°=1: Describe the methods used to calculate value added. How does value added contribute towards understanding the connections between the business and its product markets? Use relevant examples to illustrate points. Within the framework of value added in general‚ Pigou and Bernard Cox suggested the calculation of Value Added that is used for classical nationals accounts. In 1920‚ Pigou gave his interpretation of value added‚ consisting of being able to precisely determine the earnings
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functions‚ plotting best response functions‚ finding NE‚ mixed strategy NE I Repeated Prisoner’s Dilemma: finite/infinite/unknown repetitions‚ Collusion‚ Grim Strategies‚ Tit-for-Tate I Industrial Organisation 1: Monopoly‚ Cournot‚ Stackelberg‚ Homogeneous/Di↵erentiated Bertrand I Industrial Organisation 2: Product di↵erentiation‚ Ice-cream salesman‚ Linear City pricing game‚ R&D races‚ Rent Seeking 4/9 Course Overview I Asymmetric Information: Cheap Talk‚ Adverse Selection (Lemons/Peaches Problem
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and marginal cost equals 20. Firms are Cournot competitors and play a supergame. The collusive agreement being considered is for each to produce one-fourth of the monopoly output (there are 4 firms in this industry). What is the critical discount factor to sustain collusion using grim punishment strategies if detection of deviation requires three periods? Problem 3: Suppose that demand is given by P = 600 − Q and marginal cost equals 20. Firms are Bertrand competitors with unconstrained capacity
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Course Outline MBA 2011-13 Management of Pricing Elective Subject‚ Credit 2 20 Hours Course Coordinators: Ranajoy Bhattachrayya‚ Pinaki Dasgupta & Biswajit Nag (both for Delhi & Kolkata) (I) Objective The objective of this course is to bring both theoretical as well as actual practices in decision making process for pricing of goods or services. Pricing has moved up to the top priority in management decision making especially during the time of changing economic environment
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200 + 2*122 = 488 Profit = 88 c) (3 points) Given your answer to b)‚ what will happen to the market price as we move from the short run to the long run? Price will decrease 4. (20 total points) (Cournot Duopoly) Note: The following formulas will be
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2. With reference to an industry of your choice‚ identify a real-world example of firms formally or tacitly engaging in collusion‚ taking care to fully explain the nature of the collusive conduct. Using the economic theory presented in class‚ analyse the drivers of collusion in your chosen case. Also‚ critically evaluate the effects of an eradication of collusion – which would strengthen the competition between these industry rivals – on both the welfare of consumers and the financial performance
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Demand and Elasticity Linear demand curve: Q = a – bP Elasticity: E d = (ΔQ/ΔP)/(P/Q) = -b(P/Q) E d = -1 in the middle of demand curve (up is more elastic) Total revenue and Elasticity: Elastic: Ed < -1 ↑P→↓R (↑P by 15%→↓Q by 20%) Inelastic: 0 > Ed > -1 ↑P→↑R (↑P by 15%→↓Q by 3%) Unit elastic: Ed = -1 R remains the same (↑P by 15%→↓Q by 15%) MR: positive expansion effect (P(Q) – sell of additional units) + price reduction effect (reduces revenues because of lower price (ΔP/ΔQ)/Q)
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Strategic Thinking in an Oligopoly Presented by: Michael Chai CA(M)‚ CPA‚ CFP‚ MCSM‚ MMIM 1 Oligopolistic concepts/issues: – Duopoly strategic interaction – Cournot Equilibrium – Kinked demand curve – Cartel instability 2 Cournot Model • Interdependence between firms • Max π given what one firm believes the other will produce • Decisions made simultaneously • Firms compete on non-price techniques • Simplest model is a duopoly 3 Numerical example – Duopoly • • • • Assume
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