14 The Demand and Supply of Resources

• This market is very competitive.
• Cell phone companies advertise intensely, and they offer a variety of phones with voice and data plans.
• There are differences in the number of applications users can access.
• The cell phone companies do not do business in a competitive market.
• The cost of building and maintaining a cellular network is an important factor.
• Billions of dollars have been invested in infrastructure by the largest cell phone companies.
• The cost of entry is high.
• Barriers to entry are a key feature of monopolies.

• Competition and monop oly are features of the cell phone industry, but smaller firms and potential entrants find it difficult to enter and compete.
• In this chapter, we compare oligopoly with other market structures that are familiar to you.
• We look at some of the strategic behaviors that firms in an oligopoly use, an examination that leads us into the fascinating topic of game theory.

• Most people view cell phone carriers as highly competitive because of a lot of advertising and promotions.

• A small number of firms selling gopolis is like a monopolistic competitor that sells differentiated products.
• Like pure monopolists, oligopolists have high barriers to entry.
• There are differences and similarities between the four.

• Firms in competitive markets have a limited amount of market power.
• Many buyers find low prices and wide availability.
• An oligopolist sells in a market with a lot of barriers to entry.
• The firm operating under monopolistic competition has less market power than the oligopolist.
• A monopolist has more market power than an oligopolistic one.

• Economists measure market power in an industry.
• We explore the choices that oligopolists make with a simplified model.

• Industry output is concentrated among a few large firms in markets with a few sellers.
• The four- firm concentration ratio shows the sales of the four largest firms in an industry as a percentage of total sales.

• There are four firm concentration ratios for highly concentrated industries in the United States.
• This ratio is determined by dividing the output of the four largest firms in an industry by the total production of the entire industry.

• The market share held by the four largest firms is close to 100% in highly concentrated industries.
• Domestic automobile manufacturing is at the bottom of our list.
• The domestic automobile industry is dominated by General GM, Chrysler Group, Ford, and Toyota.
• Large firms have a lot of power.

• It is important to be aware of international activity when evaluating market power.
• In tire manufacturing, intense global competition keeps the market power of U.S. companies in check.

• Domestic manufacturers of automobiles have to compete against cars that are produced elsewhere.

• The market power of domestic producers is limited by the fact that vehicles produced by Honda, Nissan, Volkswagen, and Volvo limit the market power of domestic producers.
• Competition from foreign car companies keeps the market power power, not an absolute measure.

• oligopolists would like to act like monopolists, but they often end up competing like monopolies.
• Duopolies are rare in national and international markets, but not in small, local markets.
• Many small communities have a limited number of cell phone carriers.
• There are only two cell phone providers in a small town.
• The sunk cost of the cell towers is that they were built to service all of the customers in the town, so each carrier has excess capacity when the customers are divided between them.
• The marginal cost of adding additional customers is zero because of the extra capacity on each network.

• The table shows the community's demand for cell phones.
• The data is consistent with a downward sloping demand curve because the prices and quantities listed in the first two columns are negatively related.

• We assume that 1 customer is the same as 1 purchase of cell phone service.

• The total revenue from columns 1 and 2 is calculated by column 3.
• We will look at the output in this market under three scenarios: competition, monopoly, and duopoly.

• Duopoly is between the two extremes.
• Competition is not as extensive as in a competitive market, which drives the price down to cost.
• The result doesn't always mirror monopoly, where competitive pressures are absent.
• Some of the advantages of monopoly are enjoyed by a small number of firms.

• The point at which marginal revenue is equal to the marginal cost is when competitive markets drive prices down.
• Anyone who wants a cell phone service would be able to get it for free.
• The result would be socially efficient if everyone in the community had cell phone service.
• It is not realistic to expect this outcome.
• Cell phone companies provide a good that is nonrival and also excludable; in other words, they sell a club good.
• These firms are in business to make money, so they won't give anything for nothing.

• A monopolist does not face competition and price decisions do not depend on activity of other firms at the other extreme of the market structure continuum.
• The price that brings the most profit can be searched for by a monopolist.

• The total revenue peaks at $54,000.
• 600 customers have signed up for cell phone service, and the price is $90 per month.
• The total revenue is the monopolist's profit.
• The marginal cost of $0 is more than the price of the monopolist.
• The monopolist's marginal revenue is $1,500.
• The marginal revenue is determined by looking at column 3 and seeing that the total revenue increases from $52,500 to $54,000.
• The firm serves 100 additional customers, so the marginal revenue is fifteen dollars per customer.
• The total revenue falls from $54,000 to $52,500 when the price drops to $75.
• A marginal revenue of -$15 per customer is achieved by dividing -$1,500 by 100.
• The monopolist will maximize profit where MC is 0, and the point closest to this in Table 13.3 is some where between P is $90 and P is $75, but we will use P for simplicity's sake.
• The monopoly price is higher than in a competitive market.
• The result is a loss of efficiency.

• Even though tice is illegal in the United States, the two firms can decide to cooperate in a duopoly.

• Firms that collude can act like monopolists to maximize their profits.
• The monopolist would make more money by charging $90 and serving 600 customers.
• If the duopolists divide the market equally, they will each have 300 customers who pay $90 for a total of $27,000 in revenue.

• Many countries don't allow cartels.
• Even if it was legal, it would still be unison.

• AT- Phone is behaving like a monopoly.

• If AT- Phone believes that it will continue to serve 300 customers per their collusive agreement, it will lower its price to $75.
• The total market demand increases to 700 customers if we look at Table 13.3.
• AT- Phone will be able to serve 400 customers, and its revenue will be between 400 and $30,000.

• When the market price was $90 and the customers were equally divided, AT- Phone made an improvement of $3,000.

• The revenue from its 300 customers would be reduced by $22,500 if it was forced to match AT- Phone's lower price.
• There is no reason for Horizon to sit on the sideline and not do anything.
• If it decided to match AT- Phone's market share of 400 customers by lowering its price to $60, it would increase its revenue to 400 * $60, or $24,000.
• AT- Phone would match that price and make the same revenue, leaving each firm making $3,000 less than when they served only 600 customers total.
• We might expect the competition between the two firms to cause a price war in which the price eventually falls to zero.
• Both firms would no longer be making any profit if there was an all out price war, but we can't be sure of the extent of the competitive pressures that will determine each firm's decision.

• Our cell phone example shows the different results under competition, duopoly, and monopoly.
• A firm's impact on the price and market share is determined by the products it offers, the price it charges, and the output of its competitors.

• The push to compete with their rivals makes it difficult to maintain a monopoly.
• The idea that a group of people are unstable is not certain.
• In the appendix to this chapter, we look at two different theories of how oligopolists will form long- lasting cartels.
• Firms in oligopoly fall short of maximizing profits when a stable cartel is not achieved.
• They don't compete the same way as firms in competitive markets.
• When a market is an oligopoly, output is likely to be higher than under monopoly and lower than within a competitive market.
• The prices are affected by the amount of output.
• oligopoly prices are generally lower than monopoly prices because of the higher output and lower output of a competitive market.

• The monopolist is free to choose how it provides cell phone service.

• It was driven to zero in the cell phone example.
• Firms are its rival.
• The two firms may make more money.
• The monopolist charges unrealistic to expect this result, as in business to make a profit.

• Competitive pressures $90 and serves 600 customers.

• The Organization of the Petroleum Exporting Countries, or OPEC, is a group of oil- exporting countries that have a significant influence on the world price of crude oil.
• The member nations limit the overall supply of oil in order to maintain high oil prices.
• Under U.S. antitrust law, OPEC's activities are illegal.

• The 12 member nations of the Organization of the Petroleum Exporting Countries control almost 60% of the world's known oil reserves and account for 1/3 of the world's crude production.
• Saudi Arabia accounts for 40% of the production of the organization.
• Conflict inevitably arises within any organization.
• There have been embargoes, oil production disputes, and periods of falling prices in the 50 years that the organization has existed.
• The organization has not been perfect in maintaining high prices.
• The price of oil has been kept below the cost of alternative energy.
• During the periods when it adopted output rationing, the price of oil was effectively acted on by OPEC.

• The oil boom in the United States and Canada caused the price of oil to fall.
• The control of worldwide oil production and price has been reduced by the use of Shale technology.

• He was 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 800-273-3217 Nash wrote a proof about noncooperative equilibrium while he was a graduate student.
• The economics prize was won by Nash in 1994.

• Nash passed away in 2015.

• There is a conclusion to this chapter.

• The makers of the phone chose to keep the example of a Nash equilibrium.

• Both firms don't have an incentive to change when they reach that level of output.
• If the rivals collude, they can do better.
• Each rival serves 300 customers and their combined revenues go up.
• If one firm is willing to break the monopoly, it will make more money because it will serve more customers.

• Both firms have no reason to change their short- term profit- maximizing strategy at this point.

• Firms behave in a duopoly.
• Efforts to maintain a cartel are complicated by the addition of a third firm.

• There is an interaction in the cell phone market.
• Some of the major com panies are not equal.
• AT&T is larger than T- Mobile.
• The market might not have much competition if AT&T and Verizon were the only two providers.
• The market dynamic is changed by the smaller T- Mobile.
• Even though T- Mobile has less market share, they still have developed extensive cellular networks in order to compete.
• Because of the smaller subscriber bases and excess capacity of T- Mobile, they both aggressively compete for price.

• Consider what the addition of a third firm will do to the mar ket.
• There are two effects to consider when the third firm enters the market.
• The capacity to provide cell phone service will increase if the third firm builds a cell tower.

• Firm A is in a store.
• It is one of the most popular clothing stores in the country.
• It faces intense price competition and competes with many rivals.

• Firm B works in the airline industry.

Is an airline a good example of barriers to entry?

• It is the only restaurant in the area.
• People drive from far away to eat there.

• Firm A sells clothing, a product with many competing brands.
• The firm has little market power because of the intense competition.
• Firm A is a player in the market.
• It isn't an oligopolist.
• Firm B has a lot of market power.

• Smaller airlines are oligopolists because barriers to entry prevent new carriers from securing gate space.
• Firm C is a monopolist.
• It is the only place to eat in the isolated community.
• It isn't an oligopolist.

• The price effect and output effect make it difficult to maintain a monopoly.

• As the number of firms grows, each individual firm becomes less concerned about its impact on the overall price, because any price above marginal cost creates a profit.
• Individual firms are more willing to lower prices because doing so creates a large output effect for the individual firm and only a small price effect in the market.

• Some firms are larger than others.
• Smaller and larger firms in the market react differently to the effects of price and output.
• Increased output at smaller firms will have a negligible impact on overall prices because they represent only a tiny fraction of the market supply.
• For firms with a large market share, the same is not true.
• The overall amount supplied in the market will change as a result of decisions at these firms.
• The decisions of one firm affect other firms.

• The economists use a game called ory to determine what level of cooperation is most likely to occur.

• The payoff matrix shows the players, strategies, and payoffs of the game.
• It is assumed that each player is doing the same thing.

• The prisoner's dilemma is an example from game theory that helps us understand how dominant strategies often frame short- run decisions.
• The idea of the dominant strategy will be used to explain why oligopolists choose to advertise.
• We will argue that the dominant strategy in a game can be overcome through repeated interactions.

• The earnings of the other rivals can be affected by a rival's business choices.

• The dilemma is named after a famous scenario created by Al Tucker after World War II.

• Two prisoners are being questioned separately about a crime they both participated in, and each is offered a plea bargain to testify against the other.
• Both suspects will have to spend time in jail if they refuse to cooperate with the authorities.
• If one of them cooperates and the other doesn't, the police will give you full immunity.

• Each suspect has an incentive to betray the other.
• If they both confess, they will spend more time in jail than if they stayed quiet.
• The payoff for cooperating with the authori occurs when the decision ties more attractive than the result of keeping quiet.

• The white box is in the upper left outcomes.

• If one suspect testifies while his partner remains quiet, he goes free and his partner gets 25 years in jail.
• If they keep quiet, they will each get a year in jail.

• The two suspects know that if they stay quiet for 25 years in jail, they will only spend a year in jail.

• The interrogation process changes the incentives that each party faces.

• Let's start with Tony Montana's outcomes.
• Tony will get 10 years in jail if Ribera testifies.
• Tony will go free if Tony keeps quiet.
• Tony might decide to keep quiet.
• Tony can expect 25 years in jail if he testifies.
• Tony will get a year in jail if he keeps quiet.
• Tony is always better off testifying than not.
• If his partner testifies and he testifies, he gets 10 years in jail as opposed to 25 if he keeps quiet.
• Tony goes free if his partner keeps quiet and he testifies, as opposed to spending a year in jail if he also keeps quiet.

• A player will always be at work in the case of our two suspects.
• They know that if they don't respect one another, they will spend a year in jail.
• The dilemma arises because his opponent is more likely to testify and get 10 years in jail.
• The choice is obvious.

• After they are separated, neither suspect can watch the other.
• Once each suspect knows that his partner will save jail time if he testifies, he knows that the incentives are not in favor of keeping quiet.

• The Nash equilibrium is the dominant strategy.
• The best response is to testify if the other will testify.
• Without coordination, neither has an incentive to give testimony.

• The prisoner's dilemma shows that cooperation can be hard to achieve.
• We will use game theory to evaluate the outcome of our cell phone duopoly example to get a better sense of the incentives that the oligopolists face.

• The payoff matrix in Figure 13.2 shows the revenue that AT- Phone and Horizon could earn at various production levels.

• The AT- Phone does.
• It can earn between $27,000 and $22,500 at a low production level.
• The same reasoning applies to AT- Phone.
• If you look at the right- hand boxes, you will see that AT- Phone can make between $30,000 and $24,000.
• It can earn between $27,000 and $22,500 at a low production level.
• The production levels are high.
• The two companies have an incentive to serve more customers.
• A high level of production leads to a Nash equilibrium.
• The companies can make $27,000 if they operate as a Cartel.

• Two murder suspects are being questioned by the district attorney's office.

• The detective told one of the suspects that his partner in the other room was rolling over because he was cooperating.
• Adding pressure on the suspect is the interroga ally talking and the partner getting a lighter tion method.

• oligopolists are like monopolistic competitors in that they sell differentiated products.
• In markets with a differentiated product, advertising is commonplace.
• Advertising can create a contest between firms trying to gain customers in the case of an oligopoly.
• The result may be a huge increase in advertising budgets and little to no net gain of customers.

• It is easier said than done.

• Coca- Cola is the larger of the two firms, accounting for 42% of the soft drink market.
• Both companies spend hundreds of millions of dollars on advertising.
• Let's look at the dominant strategy to see if they gain anything from spending so much on advertising.
• In the absence of cooperation, each firm will choose to advertise, because the payoffs under advertising exceed those of not advertising.
• Each firm makes a $100 million profit when it advertises.
• If neither firm advertised, the $125 million profit each could earn would be the worst outcome.
• Most advertising expenditures end up canceling each other out and costing the companies millions of dollars, as the dilemma is that each firm needs to advertise to market its product and retain its customer base.

• The two companies have a dominant strategy to advertise.
• Each company makes $25 million more profit by advertising.

• American Airlines and Delta Airlines were once in a prisoner's dilemma.

• When Delta wanted to expand its share of the lucrative Dallas-to-Chicago route, American was the dominant carrier.
• Delta slashed the fare on that route to attract new travelers.
• American offered a fare cut on the Dallas-to-Atlanta route.

• It would have been better if fares were not discounted.

• The idea that companies benefit from spending less on advertising is similar to warfare.
• Whenever war ends, countries benefit from a peace dividend.
• The Cold War between the Soviet Union and the United States is one of the best examples.

• Both countries had amassed thousands of nuclear warheads by the time the Cold War ended.

• The economic pressure on each country to keep up with the other was enormous.
• During the height of the Cold War, each country had a prisoner's dilemma in which spending more in an arms race was the main strategy.
• The Cold War created a prisoner's dilemma for the United States because they were able to spend less money than the Soviet Union.

• The U.S. military budget fell from 6.5% to 3.5% of GDP in the 1990s as the nation reaped a peace dividend.
• The prisoner's dilemma can't account for military spending after the terrorist attacks of 2001.
• Game theory can be used to understand strategic decision making in noncooperative environments.
• The possible long- run benefits of cooperation are not considered by the dominant strategy.

• Robert decided to look at the choices that participants make in a long run setting.
• He invited scholars to submit strategies for securing points in a prisoner's dilemma tournament in a computer simulation.
• The results were scored after all the submissions were collected.
• After each simulation, the weakest strategy was eliminated and the rest of the strategies were used.
• The best strategy remained until the evolutionary approach ended.
• A participants mimicking a strategy is one in which you do whatever your opponent does.
• If your opponent breaks the agreement, you also break it.
• If the decision with repayment opponent behaves well, then you should do the same.

• The genius behind it is that it encourages cooperation.

• The companies know that if they try to start a new advertising campaign the other firm will respond immediately.
• Any attempt to exploit the dominant strategy of advertising will fail because the companies react to each other's moves in kind.

• Tit- for- tat makes it less desirable to advertise.
• The payoffs with advertising are more than those with not advertising, so advertising is still a dominant strategy in the short run.
• If the rival responds in kind, the firm that advertises could earn $25 million more in the short run, but in every subsequent round it should make $100 million.
• Coke and PepsiCo don't trust each other enough to earn a dividend from an advertising truce.

• The prisoner's dilemma shows how difficult cooperation is in the short run.
• For example, scam artists and shady companies take advantage of short- run opportunities that can't last because they don't have long-term relationships with businesses and people.
• You know that the other side is invested in the relationship.
• The strategy works well under these circumstances.

• At the end of the movie, the Joker tells the passengers that if they try to escape, the bomb will explode earlier.

• The passen detonator button is attached to the other ferry and each ferry can save itself by hitting a scene.

• Everyone becomes aware of the dominant position between the two boats.
• The lives of those on the civilian boat are worth more than the lives of those on the other boat.
• The civilians and prisoners react to this by having one of the ferries blow up the other information.

• The dominant strategy in the payoff matrix is to decide which boat to blow up.
• Failing to participate in the experiment.
• Either the ferry blows the scene as a game theorist will give you a new up at midnight or the other boat will blow it up first.

• Some games do not involve simultaneous decisions.
• Sometimes one player has to move first and the other has to respond.
• The process of deducing theory is the process of backward from the end of a scenario to infer a sequence of optimal actions.

• The payoff matrix at the end of a scenario summarizes the payoffs of a noncooperative game.

• It is not possible to predict what the final outcome will be because neither of them has a dominant strategy.

• The game is predictable if we let one player go first.
• Let's imagine that the first choice is Azalea and the second choice is Iggy.

• The first player can limit the set of outcomes to one game.

• If she agrees, she must choose between making $20,000 or $75,000 and must work off the lower left set of branches.
• Iggy chooses to disagree.
• In this case, the final outcome is between $50,000 and $75,000.
• The payoffs on the lower right side of the decision tree would be faced by Iggy if she chose Disagree to start.
• If she agrees, she will get $50,000 and if she disagrees, she will get $25,000.

• The final outcome is between $50,000 and $35,000 for the two.

• Knowing that Iggy will disagree, Sequential Game will agree.

• There is a game that guarantees $50,000 and $75,000.

• She can use this knowledge to earn $50,000 for herself by agreeing with the full knowledge that she will choose Disagree.

• There are many examples of sequential games.
• Chess and check ers are two popular board games.
• It becomes easier to predict future decisions once a particular path is taken, as many business decisions are sequential in nature.

• It is easier for a firm to predict how a rival will react when they look at the remaining choices on a decision tree.

• Game theory can be used to make decisions, but not all games have the same strategies.
• The game known as rock- paper- scissors is a good example.
• This simple game has no dominant strategy: paper beats rock because the paper will cover the rock, and scissors beats paper because the scissors will cut the paper.
• The preferred choice is determined by what the other player chooses.
• Life and business are more similar to rock- paper- scissors than the prisoner's dilemma.
• Winning at business in the long run often occurs because you are one step ahead of the competition, not because you deploy a strategy that attempts to take advantage of a short- run opportunity.

• Consider two friends who play racquetball together.
• Each point is determined by whether the players guess correctly about the direction the other player will hit.
• Figure 13.6 is a game of rock- paper- scissors.
• The success of Joey and Rachel depends on how well each one does.

• There are only two sandwich shops in a small college town.
• Their profits fall to $1,000 when they run promotions.

• University Subs will make between $1,000 and $15,000 if it runs the 2- for- 1 promotion.
• If University Subs keeps the price high, it will either lose money or make money.
• A 2- for- 1 promotion is suppose to be run by Savory Sandwiches.
• The University Subs's best response is to run a 2- for- 1 promotion.
• Imagine that the strategy of keeping the price high is used by Savory Subs.
• The 2- for- 1 promotion is the best response.
• University Subs's best response is to run a 2- for-1 promotion.
• The same strategy and payoffs can be found in Savory Sandwiches.
• Both companies will make $1,000 from the promotion.
• If the other company runs a 2- for- 1 promotion, neither firm will switch to the high- price strategy.
• Both companies run a promotion.

• Rachel lost the point.

• Joey loses the no Nash equilibrium.

• Rachel and Joey don't have a dominant strategy that guarantees success.
• Sometimes he wins when hitting to the right and other times he loses the point.
• Sometimes Rachel wins when she guesses to the left and other times she loses.
• Half the time, each player guesses correctly.

• There is no Nash equilibrium because we can't say what each player will do.
• There is no way to predict how the next point will be played, as any of the four outcomes are equally likely on successive points.
• We can't expect every game to include a prisoner's dilemma and produce a Nash equilibrium.
• Like real life, game theory has many different outcomes.

• When an industry forms a cooperative alliance, it becomes a monopoly.
• Competition is not good for society.
• Policy legislation can help improve the social welfare of society by restoring competition and limiting monopoly practices.

• The Sherman Act was the first federal increase in concentration ratios in leading U.S. industries.

• Some actions became criminal after the act took effect.

• Large corporations were vilified during the presidential election of 1912, and the Sherman Act was seen as largely ineffective in curtailing monop that reduce competition.

• The Clayton Act was added to the list of activities that were deemed socially detrimental.

• Lawmakers have refined anti trust policy over the past hundred years.
• It is difficult to determine if a company has violated the law because of additional legislation and court interpretations.
• The U.S. Justice Department lacks the resources to fully investigate every case.
• These laws are essential to maintain a competitive business environment, even though cases are hard to prosecute.
• Firms would find other ways to restrict competition if there were not effective restrictions on market power.
• The most influential antitrust cases in history are described in Table 13.5.

• Firms have a strong incentive to cooperate in order to keep prices high, but they also want to keep potential rivals out of the market.
• In order to prevent rivals from entering the market or to drive rival firms out of business in the long run, the firm suffers a short run loss that is below average.
• The firm should be able to market once the rivals are gone.

• It is difficult to prosecute predatory pricing.
• The court system and economists don't have a simple rule to determine when a firm steps over the line.
• Pricing can look and feel spirited.

• Standard Oil was founded in 1870.
• The company drove the price of oil down to 6 cents a gallon in 1897, putting many of its competitors out of business.
• Standard Oil became the largest company in the world.
• Standard Oil was sued by the U.S. government for violating the Sherman Antitrust Act.
• After three years, the company was found guilty and had to break up.

• The only producer of aluminum in the United States for many years was founded in 1907 by the Aluminum Company of America.
• The company gained exclusive rights to all U.S. sources of bauxite, the base material from which aluminum is refined.
• In the United States and Canada, it acquired land rights to build and own hydroelectric facilities.
• ALCOA prevented other firms from entering the U.S. aluminum market by owning both the base materials and the only sites where refining could take place.
• The Department of Justice filed a suit against ALCOA.
• The Supreme Court ruled that ALCOA was a monopoly after seven years.
• ALCOA was not broken apart because of the emergence of Kaiser and reynolds.

• AT&T was sued by the U.S. Attorney General for violating antitrust laws.
• Seven years passed before a settlement was reached to split the company into seven new companies.
• AT&T Incorporated is now one of the largest companies in the world after five of the seven merged.

• Internet Explorer has been replaced by other browsers.

• The European Union is investigating whether or not the dominant market share of a search engine is used to gain an unfair advantage over competitors.
• In 2015, the search engine of choice in Europe was Google.
• The regulators have focused on accusations that search results divert traffic away from search results that favor its rivals and toward results that favor its own products.

• Evidence that the firm's prices increased after its rivals failed is needed to prove predatory pricing.

• Walmart is often seen as a predatory firm that engages in pricing because it drives many smaller companies out of business.

• There is no evidence that Walmart raised prices after a rival failed.
• It does not meet the legal standard for predatory pricing.
• In the 1990s, Microsoft came under intense scrutiny for giving away its browser, Internet Explorer, in order to compete with Netscape.
• At some point, you've experienced a price war.
• Two gas stations, clothing outlets, or restaurants are charging unbelievably low prices.

• Evidence of the intent to raise prices after others are driven out of business is an essential element for proving predatory pricing.

• That is a problem in the example.

• Check out the closings.

• Efforts to maintain high prices for a long time will fail because barriers to entry are low in most metropolitan areas.
• Customers will vote with their feet and wallet by choosing another pizza place a little farther away that offers a better value.
• A new pizza parlor will open nearby if the victor is vulnerable because of the high prices.
• The market is very competitive and any market power created by driving out one rival will be fleeting.

• The price war is not predatory.
• It's probably just promotional pricing to protect market share.
• Firms often lower their prices to attract customers.
• These firms hope to make up the difference with high profit margins on other items, such as beverages and side dishes.

• The company gained over 80% of the browser market and was able to keep its leadership with the Windows operating system thanks to thebundling of Internet Explorer with Microsoft Office.

• The government did not prosecute Microsoft for predatory pricing because Microsoft never raised the price of Internet Explorer.
• The government prosecuted Microsoft for tying the purchase of Internet Explorer to the Windows operating system in order to restrict competition.

• The Microsoft case lasted over four years, and it ended in a settlement because Walmart keeps its prices low.

• Firms with a lot of customers find it easier to use good influences to attract new customers and keep their regular customers from changing.

• In the early days of social networking, MySpace had more users than Facebook.
• MySpace was slow to respond to the threat, while Facebook built a better social network.
• It was too late for MySpace to respond, as Facebook was already on its way.
• Facebook is the dominant social networking platform.
• The sheer size of Facebook makes it a better place to do social networking than other sites.
• Even though Facebook now has a lot of network externalities, it must be careful not to end up like MySpace.

• New technolo gies are involved in most network externalities.
• Some technologies need to reach a critical mass before consumers can use them.
• Everyone seems to have a cell phone.
• Cell phones were introduced in the United States in 1983.
• The first users were unable to use the internet, text, or use many of the applications we enjoy today.
• The phones were large and heavy.
• The expansion of networks brought about when a consumer changes from one supplier to more users, and the new adopters benefited from the steadily expanding another.

• Other technologies have gone through similar changes.
• The number of users is what determines the Inter net, fax machines, and apps.
• If you were the only person with the ability to send and receive a fax, your technical capacity wouldn't have much value.
• The way for the next generation of users is paved by first adopters.

• Customers may face significant costs if they leave a larger network.
• Many users had to switch from listening to music on CDs to using digital music files.
• There are different costs for different digital music options.
• The cost of transferring music from one format to another makes it difficult for consumers to change.
• The demand for the existing product becomes moreelastic when consumers face switch costs.
• oligopolists try to make it harder to switch to another network by using the number of customers they maintain in their network.
• Frequent fliers, hotel reward points, and credit cell phones are some of the perks that firms promote in order to increase loyalty.

• The costs associated with future users are an excellent example of the costs of switch.

• Smaller schools have a harder time raising funds than colleges and universities that have more alumni.
• Alumni are more likely to hire people who went to the same school if they have a lot of alumni.
• Penn State University has the largest alumni base.
• Each graduate benefits from network externalities.

• If it were larger, it wouldn't be able to make as many obscure titles available.
• The network benefits from having more DVDs to choose from.

• Each one will have to compete harder to get fresh bread if it attracts more customers.
• Network externalities do not exist because the bakery's supply of bread is limited.

• Many providers don't charge for calls inside the network or among a circle of friends.
• If you don't switch, you will end up using more minutes on a rival network.
• Many cell phone customers pay high switching costs because of these two tactics.
• In 2003 the Federal Communications Commission began requiring phone companies to allow customers to take their cell phone numbers with them when they switch providers.
• The cell phone market has been made more competitive by the change in the law.

• Oligopolists are aware of the power of the network.
• The first firm into an industry can often gain a large customer base.
• Positive network externalities allow the firm to grow quickly.
• Consumers are more comfortable buying from an established firm.
• It is difficult for smaller competitors to gain customers because of the two factors.
• The presence of positive network externalities causes small firms to be driven out of business or forced to merge with larger competitors.

• When you hear about something new, you check it out.
• There is no harm in doing that.

• You have made an investment.
• It depends on how many other people do the same thing.

• The first people to get a 3D television.

• The amount of 3D programming was very small.

• Consumers who waited could buy a 3D unit with greater investment clarity.
• This was true at a lower price, and more content was available to watch on all of the social networks.
• That was a win for people who were late.

• The early adopters were punished for paving the way.

• Externalities are important on many social media sites.
• Waiting for a site to gain traction will cause it to fail.
• You can't set up a profile and invest time and money in this market if you find out that other people are on other sites.
• Signing up for dozens of dating sites or simply choosing are more excited you about the features than you are about the features.
• You end up wasting a lot of time because you don't get the biggest database because Match.com is the largest site.
• Network benefits come from dating sites.
• If you wait until a platform is established, you can be confident that your return on your investment will improve your odds of success.

• The misconception was that cell phone companies compete like firms in competitive markets or monopolistically competitive markets.
• The truth is that cell phone companies are monopolies.
• Firms can collude to create monopoly conditions.
• It's hard to predict the result.

• oligopolistic firms are capable of cooperating to maximize their long- run profits, if the potential success of a tit- for- tat strategy is to be believed.
• When more competition is present, society's welfare is higher because it mirrors the result found in monopolistic competition.
• Each oligopolistic industry must be assessed on a case- by- case basis by examining data and using game theory because the market structure is not predictable.

• One of the most fascinating parts of the theory of the firm is the study of oligopoly.

• If the most beautiful woman in the bar was without a dance partner, each of the gentlemen would have an incentive to change their behavior.

• When a small number of firms sell a differentiated product in a market with significant barriers to entry, there is a type of market structure called oligopoly.
• An oligopolist is a competitor that sells differentiated products.
• It is like a monopolist because it has a lot of barriers to entry.

• Oligopolists have a tendency to collude in order to achieve monopoly-like profits.

• marginal cost and price are not the same.
• The result is somewhere between the competitive market and monopoly outcomes.

• When cooperation is most likely to occur is determined by game theory.
• Decision- makers have dominant strategies that lead them to be unwilling in many cases.
• Firms compete with price or advertising when they can potentially earn more profit by curtailing these activities.

• When games are played multiple times, they become more complicated.
• When repeated interaction occurs, decision- makers fare better under the approach that maximizes the long- run profit.

• Cases are hard to prosecute in antitrust law.
• These laws are needed to give firms an incentive to compete.

• Antitrust policy limits price discrimination, exclusive dealings, tying arrangements, mergers and acquisitions that limit competition and predatory pricing.

• The quantity demanded is influenced by the number of customers who chase or use a good.
• Small firms can go out of business if positive network externalities are present.

• You can give reasons for your response.

• Some places will only sell alcohol on Sunday if you can convince her to drink.

• You answered after teaching a class on game theory.

• The markets that are mentioned are tion.

• The only way your economics instructor can ask a question is through the ing procedure.
• You have to wake up again.
• There is a student project.

• If there are only two suppliers.

• 7 is the number of happiness.

• There is a happiness quotient of 9.

• Goods had to work 10 hours in order to be taxed so that they were graded A.

• 7 is the happiness quotient.

• It's 4/10 for happiness.

• Your grade is A, but you don't have restrictions.
• The payoff matrix was used to determine the best policies for 15 hours.

• It's 4/10 for happiness.

• 6 is the happiness quotient.

• China gains a lot of happiness.

• 6 is the happiness quotient.

• 4,000 lowers trade barriers.

• 8,000 is considering entering the market.

• Perfect Pies stays out of the market if you use the pay.
• How will Perfect Pies enter the market if the questions are not answered below?

• Two brands of coffee makers are competing for the convenience market.

• /watch?v=cSLeBKT7-sM.

• When The Pizza Factory sets a high price that your roommate cannot sleep, the combined profit for both firms is high.
• It won't take long for both countries to impose high tariffs.
• Each country will make their roommate realize that she should set $25 billion.

• The United States and China would benefit from the snooze button.
• Your roommate doesn't want to lower trade barriers.
• Each country would make $50 billion if the snooze button was used longer.

• Staying in bed for as long as you want is not a dominant strategy in this tern.

• The United States can't bring themselves to answer with paper because they can't impose high tariffs because they don't like Spock.

• There are two theories that argue that oligopolists will form long- lasting cartels.

• There is a demand curve and price leadership.

• A group of oligopolists have set an output level and price to maximize economic profit.
• When a rival raises lists have higher prices, the other firms all stand to benefit by keeping their prices the same in order to capture those customers who don't want to pay more.
• The firm that raises its price will see a drop in sales.

• Other firms in the industry will match the price decrease if any of the rivals attempt to lower the price.
• The firm's price will not gain many new customers because of the price match policy.

• Because a price drop by one firm will be met immediately by a price drop from all the competitors, no one firm will be able to attract many new customers.
• This can happen at any price below the agreed price.

• The firms' behavior creates a demand curve that is more elastic at higher prices and more inelastic at lower prices.

• Each firm in the industry charges P and produces Q.
• The marginal revenue curve is not constant because demand is elastic above P and less elastic below P. The gap is illustrated by a black vertical line.
• More than one marginal cost curve intersects marginal revenue at output level Q because of the gap in marginal revenue.
• The marginal cost curves MC1 and MC2 show this fact.

• The demand curve can't explain how prices change.
• The theory of price leadership gives some insight.

• Demand is inelastic at prices below P.

• The price leader sets the price and output level that maximizes its own profits.
• Smaller firms set their prices to match the leader.
• Because the smaller firms in the industry follow by setting their prices impact on price is small, it makes sense that smaller rivals match the price leader.

• Price leadership isn't illegal because it doesn't involve colluding.
• An effort to resist changes implemented by the price leader will lead to increased price competition and lower profits for every firm in the industry.

• Pricing patterns in the airline industry are an example of price leadership.
• On almost any route with multiple carrier options, a price search for flights will reveal the same prices on basic economy class flights.
• Even though firms do not collude to set a profit- maximizing price, this similarity of prices happens.
• The other carriers feel compelled to match the fare set by one firm.
• Smaller rivals follow suit when the largest firm raises or lowers its price.

• The parking garage charges $10 a day.

• Most large banks charge the same or nearly and they lose customers to the cheaper garage.

• When the market lowers the parking garage's price, the other garages almost always match the major banks rate reduction.
• The types of banks that follow suit quickly.