rates and the special offerings over weekend or peak hours they turn to overlap with no much difference‚ which supports none collusion competition since there is no verbal agreement‚ but one can notice that the action of another service provider influences the other and they always counter act each other. Non collusive competition which is sometimes referred to as tacit collusion can be reached due to the fact that companies can realized the break out of price war through undercutting and this influenced
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your practice for the midterm exam. Problem 2: Suppose that demand is given by P = 600 − Q 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 =
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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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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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BSB & Sky TV slide1: News Corporation would begin broadcasting a satellite TV service to Britain in February 1989. BSB had been working toward the same goal for eighteen months and planning a fall 1989 launch date. Both were (losing Money‚ Gaining Profit). Please Choose One.Why would a frim engage itself in price war? BSB and SKY were both losing money in the price war.Price is a commercial method to beat down competitors in the same industry.One competitor will lower its price first and others
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incumbents especially that firms management usually they repeat their type over and over again especially when it succeeds. Reaction functions: When the new entrant will enter the market‚ the reaction from the incumbents will be either passive (Cournot model) to balance the quantity in the market‚ i.e. to adjust
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that relies on synergy‚ organisational learning and moral hazard. We demonstrate that depending on parameter values the outcome may involve any one of the following: stable joint venture formation‚ joint venture formation followed by breakdown‚ or Cournot competition in all the periods. We also provide some interesting welfare results. © 2001 Elsevier Science B.V. All rights reserved. Keywords: Joint ventures; Learning; Synergy; Moral hazard JEL classification: F23; L13 1. Introduction Joint ventures
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identical products at a constant MC Each firm independently sets its price Barriers to entry exist Bertrand Equilibrium P1=P2=MC Cournot vs. Bertrand Competition may take place over different time frames Cournot competitors price less aggressively than Bertrand competitors Bertrand competitors can ‘Business steal’‚ and meet rising demand‚ end up with 0 profits Cournot competitors have set capacity and make production decisions in advance‚ unlikely to react to fluctuations in rival’s output Stackelberg
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firms is producing 12.1.2 Competitive market solution. Due to symmetry‚ each of the firms is producing 12.1.3 Cournot solution. Firstly‚ treat Shell’s quantity as given: (12.) For Caltex to maximize its profit‚ the FOC requires: (12.) Secondly‚ treat Caltex’s quantity as given: For Shell to maximize its profit‚ the FOC requires: (12.) The Cournot-Nash equilibrium is given as: Market output ‚ market price ‚ and firms’ profits are: 12.1.4 Bertrand solution. 12
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Market structures and pricing Revenues Consumers * Inverse demand curve gives willingness-to-pay * Benefit consumer(s) derive(s) from additional good; * Area under inverse demand curve measures total willingness-to-pay‚ total benefit or total surplus. * Maximum price I can charge as producer determined by inverse demand function * Marginal revenues; revenue of next unit I sell Strategies * Profit maximization * Marginal profits equal to 0 (MR=MC) *
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