Module 3 – Case
MARKET STRUCTURE AND GAME THEORY
Assignment Overview
As always, make sure to thoroughly
review the required background materials before starting the assignments. The assignment questions will require you to
do some calculations and also apply the concepts from the module. Question 3
differs from previous assignments in that you have to use an online simulation
tool; but this activity should be a fun break from the standard numerical
problems you have been doing.
Case Assignment
1.
1. For this problem use the Herfindahl Index
to compute market concentration:
a. Suppose Apple has 45% of the U.S. market
share for smartphones, followed by Samsung with 30%, LG with 9%, Motorola with
8%, HTC with 6%, and Nokia with 2%. What
is the Herfindahl Index for the smartphone industry based on these numbers?
Based on the Herfindahl Index, do you think the government would be willing to
approve a merger between Apple and Samsung?
b. Now suppose Nokia and Motorola come out
with a new smartphone that takes away a huge chunk of market share from Apple
and Samsung. The new market shares are 25% for Apple, 20% for Samsung, 20% for
Motorola, 20% for Nokia, 10% for LG, and 5% for HTC.
2. Use what you learned about perfect
competition, monopoly, and oligopoly to answer these questions:
a. In the table below is the quantity
produced, the price, the fixed costs, and variable costs for a perfectly
competitive firm that faces a constant price of $150 for its product regardless
of the quantity it sells. Use the
information in the first four columns to calculate the number for the last four
columns. At what quantity should they
produce based on what you find with your results?
b. How do you think your answer might change
if it became a monopolist with all of its competitors leaving the market? Or if it became an oligopoly with only one or
two competitors?
Quantity
Price
Fixed Cost
Variable Cost
Total Cost
Marginal Cost
Total Revenue
Profit/
Loss
0
150
200
–
–
1
150
200
$140
2
150
200
$240
3
150
200
$320
4
150
200
$410
5
150
200
$520
6
150
200
$650
7
150
200
$810
8
150
200
$1,010
9
150
200
$1,310
10
150
200
$1,710
3.
3. You’ve read about the prisoner’s dilemma in
the background readings. Suppose you are
a business owner with just one main competitor.
If neither you nor your competitor cut your prices, you will both be
more profitable. However, if your
competitor lowers its prices and you keep your prices high, then you will lose
all of your sales to your competitor.
Every month you and your competitor place advertisements in the local
newspaper with your price – so you need to decide each month whether or not to keep
prices high, or lower them based on what you think your competitor might do.
Go to the following webpage and
test out some of your potential price strategies:
http://www.gametheory.net/Mike/applets/PDilemma/Pdilemma.html
The strategy “defect” indicates
lowering your prices. The strategy “cooperate” means keep prices the same. Try
out different strategies, such as cooperating all the time or defecting
sometimes. There are five different
rounds of this game, each with a competitor with different personalities and
different strategies. Play all five
rounds and experiment with different strategic approaches. Report your scores for each round, and
discuss which strategies seemed to work the best for you.
Assignment Expectations
· Answer the assignment questions
directly.
· Stay focused on the precise assignment
questions. Do not go off on tangents or devote a lot of space to summarizing
general background materials.
· For computational problems, make sure
to show your work and explain your steps.
· For short answer/short essay questions
make sure to reference your sources of information with both a bibliography and
in-text citations. See the Student Guide to Writing a High-Quality Academic
Paper, including pages 11-14 on in-text citations. Another resource is the
“Writing Style Guide,” which is found under “My Resources” in the TLC Portal.
Module 3 – SLP
MARKET STRUCTURE AND GAME THEORY
For this assignment, you will be
building upon your Module 2 SLP by continuing to examine other businesses in
your chosen industry. Remember that the other businesses you wrote about in
your Module 2 SLP will be your future competitors if you decide to open your
own business. So it is important to get
an idea of the competitive landscape of your chosen business. After reviewing the required background
readings and doing some more research on your chosen industry, write a
three-page paper discussing the following issues:
1. What market structure is there for this
line of business in your home town? Is this a monopoly, oligopoly, monopolistic
competition, or perfect competition?
Justify your answer using both your own research on this type of
business in your home town, and by referencing some of the required background
readings on different types of market structures.
2. Now that you have examined market structure
of your chosen industry in your home town, do some research on IBIS World on
market structure in this industry nationwide.
You can access IBIS World by going to the main TLC Portal and clicking
on “Additional Library Resources”. A
link to IBIS World will come up. This
direct link might also work if you are already logged onto the Trident online
library. What information could you find regarding how concentrated or how
competitive this industry is?
3. Based on the information you found for
Question 2, what market structure do you think best describes this industry
nationwide? Is this a monopoly,
oligopoly, monopolistic competition, or perfect competition? Explain your
answer using both information from IBIS World and the concepts from the
required background readings.
SLP Assignment Expectations
· Answer the assignment questions directly.
· Stay focused on the precise assignment
questions. Do not go off on tangents or devote a lot of space to summarizing
general background materials.
· Make sure to use reliable and credible
sources as your references. Articles published in established newspapers or
business journals/magazines are preferred. If you find articles on the
Internet, make sure they are from a credible source.
· Reference your sources of information
with both a bibliography and in-text citations. See the Student Guide to
Writing a High-Quality Academic Paper, including pages 11- 14 on in-text
citations. Another resource is the “Writing Style Guide,” which is found under
“My Resources” in the TLC Portal.
