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Unformatted text preview: CHAPTER 15 Imperfect Competition The problems in this chapter provide the student with some practice with many of the different models of imperfect competition introduced in the text. Space considerations forced us to omit problems on search, advertising, and innovation. The instructor may wish to supplement the problem set with exercises from these areas depending on interest. Comments on Problems 15.1 Compares the monopoly outcome to the outcome under Cournot and Bertrand competition in a simple example with perfect substititues and linear demand. 15.2 Generalizes the previous problem to general linear demand functions and arbitrary numbers of firms. 15.3 Analyzes Cournot competition when firms have different marginal costs. This departure from identical firms allows the student to shift around firms best- responses independently on a diagram. 15.4 Analyzes Bertrand competition when firms have different marginal costs. If we adopt the usual assumption that demand is allocated evenly to equal-priced firms, then we encounter a technical problem, called the open-set problem, in this setting. It would not be an equilibrium for firms to charge 10 (the high marginal cost). The firm 2 would profit from undercutting slightly and capturing all demand. The problem is that firm 2 has no best undercutting price. For any price just below 10, say 9.999, firm 2 could earn more by increasing price slightly but keeping it below 10, say 9.9999. One way to avoid this problem is to assume prices are denominated in discrete units, say pennies, and fractions of pennies are not allowed. The solution to the open-set problem suggested here is to assume that the low-cost firm gets all the demand at equal prices. 15.5 Analyzes Bertrand competition with differentiated products. Gives students practice in drawing diagrams with upward-sloping best responses (as opposed to downward-sloping with Cournot). 15.6 Exercises in collusion in infinitely repeated games. 15.7 Analyzes the Stackelberg game both with and without the possibility of entry- deterring investment. 15.8 Analyzes entry deterrence in a Hotelling model. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. 127 128 Chapter 15: Imperfect Competition Analytical Problems 15.9 Herfindahl index of market concentration. Many economists subscribe to the conventional wisdom that increases in concentration are bad for social welfare. This problem leads students through a series of calculations showing that that the relationship between welfare and concentration is not this straightforward....
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This note was uploaded on 06/09/2010 for the course AP 4010 taught by Professor Anam,mahmudul during the Winter '10 term at York University.
- Winter '10