Economics of Strategy CH.5

Based on Bresnahan and Reiss' study of the relationship between concentration and prices, how many firms did they determine generally need to be in a market for price competition to be as intense as it would likely get?

3

What kind of competition is generally described as price competition?

Bertrand competition

What kind of competition is generally described as quantity competition?

Cournot competitio

What empirical method generally is used to measure the degree to which products substitute for each other?

Cross-price elasticity

Which of the following is not a characteristic of substitute products X and Y?

Customers are indifferent between X and Y

Which U.S. agency is responsible for preventing anticompetitive conduct?

Department of Justice

What term does Sutton use to describe the costs of establishing a credible brand?

Endogenous sunk cost

The Revenue Destruction Effect in oligopolies occurs when:

Firms independently maximize their own profits

Which of the following is the definition of "competitors?

Firms whose strategic choices directly affect one another

What is the term for examining consumers travel patterns?

Flow analysis

What term describes the differentiation of a product when only some consumers prefer it to competing products (holding price equal)?

Horizontal differentiation

What group/type of preferences describes when tastes differ markedly from one person to the next and result in horizontal differentiation?

Idiosyncratic preferences

Recent studies have shown that increases in market concentration lead to which of the following?

Increases in prices

What term describes existing firms in a monopolistically competitive market?

Incumbents

The Herfindahl index solves which problem with the N-Firm ratio?

Invariance with changes in the size of the largest firms

7. What is defined by the number and size distribution of the firms in a market?

Market structure

What term describes a firm that faces little or no competition in one of its input markets?

Monopsonist

In what type of market do the actions of individual firms materially affect the overall market?

Oligopoly

. In what type of market structure do sellers set identical prices and are prices generally driven down to marginal costs?

Perfect competition

Of the following industries listed, which one is generally thought of as having the highest search costs?

Physician service

What criterion developed by the DOJ is used to identify all potential competitors within the market?

SSNIP criterion

The causal connection between firms is known as the:

Structure, Conduct, Performance paradigm

The average PCM (percentage contribution margin) in a Cournot equilibrium is given by the formula PCM=H/η, where H is the Herfindahl index and η is the price elasticity of market demand. Given this equation, which of the following statements is true?

The less concentrated the industry, the smaller the PCMs in equilibrium

What term describes the differentiation of a product when it is unambiguously better or worse than competing products?

Vertical differentiation

Which of the following is a reason other than concentration that price-cost margins may vary across industries?

a) Accounting practices b) Regulation c) Product differentiation d) Nature of sales transactions e) All of the above

What is a catchment area?

e) The contiguous area from which a firm draws most of its customers