How does a repeated game impact firms’ behaviors? Firms may reciprocate their rivals’ actions. Firms may want to cooperate. Firms may restrain from competing as hard as possible.

What are the conditions that enhance the likelihood of a cooperative outcome in a repeated prisoners’ dilemma game? The likelihood of a cooperative outcome is improved when the players are patient, their interactions are frequent, cheating is easy to detect, and the one-shot gain from cheating is small.

tat strategy

Collusion occurs when rival firms agree to work together – e.g. setting higher prices in order to make greater profits. Collusion is a way for firms to make higher profits at the expense of consumers and reduces the competitiveness of the market.

What are the positive effects if large oligopolists do not advertise? The lack of manipulative information would reduce the chance of a firm becoming a monopoly. A reduction in advertising would help lower prices and possibly increase product output.

Advertisement in oligopoly markets is somewhat different than the other markets. The major benefit they reap from advertisements is that it helps them increase their overall market share and can also influence the demand of their product and cause it to rise.

Why do oligopolists use product development and advertising? They enhance the public good by providing information and new products.

The effects of a firm advertising a product in a perfectly competitive market would be illogical. Firms advertising in this market would not be maximising profits, because they are pushing up marginal costs unnecessarily as there is no impact to the firms demand since products are standardised.

Another characteristic of monopolies is that they do not need to advertise their product to increase market share. They generally use public relations and advertising to increase awareness of their products and to maintain a good relationship with their buyers.

How does such advertising help consumers and promote efficiency? Advertising may result in manipulation and persuasion rather than information. An increase in brand loyalty through advertising will increase the producer’s monopoly power. Excessive advertising may create barriers to entry into the industry.

Answer: A four-firm concentration ratio of 60 percent means the largest four firms in the industry account for 60 percent of sales; a four-firm concentration ratio of 90 percent means the largest four firms account for 90 percent of sales (just add the percentage of sales for the largest four firms).