George Stigler, a Nobel laureate in economics, suggested that one reason why
oligopolies have prices higher than competitive industries is that tacit coordination
concerning output and price is much easier when there are only a few competing firms.
In addition, it is easier to detect cheating on some agreed-upon price or output level.
Evaluate this argument.
In recent years, the U.S. government has often negotiated cost-plus contracts (CPC)
with defense firms developing new weapons systems. Under a CPC, the government
reimburses the contractor for the total costs it incurs. Frequently, the result is cost
overruns in development. Why might this occur? How might an alternative contract
structure remedy this problem? Could this contract solution cause a new problem?
Explain why the demand curve for a competitive firm is horizontal.
How does Michael Porter’s Five Forces model explain the structures of different
industries?
Graph and solve the following linear programming problem:
Maximize Z = 100x + 50y
Subject to: 10x + 10y ‚ 50
y ‚ 3, x, y ‚ 0
For the payoff table listed, determine the equilibrium outcome. Does either firm have a
dominant strategy?
The German electronics company Siemens has a two-tier system of corporate
governance: a management board and a separate supervisory board. For major company
decisions, management must build a consensus with the supervisory board. What are
the advantages and disadvantages of this corporate structure?
Antitrust laws in the United States generally forbid tie-in arrangements. What reasons
might firms give to justify tying of goods? What reasons might antitrust authorities state
to prevent it?
Compare the strategies bidders employ when participating in the English, sealed-bid,
and Dutch auctions.