ASl Oligopoly: Definition & Strategy Student Name: a) If an industry is made up

Question

ASl Oligopoly: Definition & Strategy Student Name: a) If an industry is made up of eight firms with identical sales, what is the four-firm concentration ratio of that industry? b) Is this industry an oligopoly? Why or why not? Godrickporter and star connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. The table above shows the payoff matrix for this advertising game. a) Is there a dominant strategy for Godrickporter? If so, what is it? If not, why not: b) Is there a dominant strategy for star connections? If so, what is it? If not, why not? Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

Explanation / Answer

1.

a.

In a given scenario, all the 8 firms are getting identical sales.

Thus,

Four firm concentration ratio = sales of top 4 firms / total industry sales = 40/80

Four firm concentration ratio = 50%

b.

This market is not reflecting   Oligopoly behavior and four firm concentration ratio is only 50%. It falls under the category market of low concentration also. A more than 60% ratio of four firm concentration would reflect the Oligopoly market. Also, sales are identical in nature. Thus, no any firm can claim to be a leader and the rest of them will become follower in the market.

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