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ch14 - CHAPTER 14 TRADITIONAL MODELS OF IMPERFECT...

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CHAPTER 14 TRADITIONAL MODELS OF IMPERFECT COMPETITION The problems in this chapter are of two types: analytical and essay. The analytical problems look at a few special cases of imperfectly competitive markets for which tractable results can be derived. Some of these results (especially those in Problems 14.4, 14.5, and 14.6) are quite important in the industrial organization literature. The essay problems in the chapter (14.3 and 14.8) do not offer such definitive results but instead ask students to think a bit more broadly about some institutional issues in industrial organizations. Comments on Problems 14.1 This is a simple duopoly problem that duplicates Example 14.1 with different numbers. 14.2 A problem providing numerical solutions for monopoly and Cournot equilibria for the simple linear demand curve and constant marginal cost case. The problem shows that in this case the competitive solution ( P = 5) is the limit of the Cournot outcomes as the number of firms approaches infinity. 14.3 An essay-type question that seeks to explore some purported empirical observations in various markets. 14.4 A problem that shows the derivation of the “Dorfman-Steiner” conditions for optimal spending on advertising. 14.5 The problem shows that the widely-used Herfindahl Index is correlated with industry profitability, if the firms in industry follow Cournot pricing strategies. 14.6 A problem based on Salop’s “circular” model of demand. This is a very useful model both for spatial applications and for looking at issues in product differentiation. 14.7 This problem provides a numerical example of price leadership. Construction of the net demand curve provides a good illustration of the assumptions behind the behavior of the “competitive fringe.” 14.8 An essay question about monopoly and innovation. The question is a very complex one in reality though the solutions provide Fellner’s suggested simple answer to the problem.
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