3. Assume two firms are currently competing in a market. If one of the two firms...

3. Assume two firms are currently competing in a market. If one of the two firms wants to try to eliminate the other firm as a competitor, should it undertake a strategy of limit pricing or predatory pricing? Why? In addition, describe the conditions under which the strategy you have selected will be most successful.

Expert Solution

Strategy of predatory pricing will be the most suitable for driving out competitors.

Predatory pricing is the best preferred when the motto is to completely drive the completion to the ground.Limit pricing is most suitable for limiting competition entry into the market.It does little to eliminate an already strong competition.

Predatory pricing can eliminate multiple completions at the same time.

It serves the dual purpose of limiting others entry to the market and levelling the threats.

Though the company may incur short term losses,it can permanently disrupt the market to give it a monopoly where it decideds the market path in the future.

Predatory pricing will be most successful under following cases:

1.When the competition is in already financial stress

2.When most of the competition includes start ups.Predatory pricing can drive the prices so low that keeping the startups away from bankruptcy can be an impossible job.

3.When the company moving forward with predatory pricing holds something like monopoly over the market,P.P can be the most viable option

Rahul Sunny answered 7 months ago

Assume that there are two firms competing with each other (duopoly) and make their output decisions...

Assume that there are two firms competing with each other (duopoly) and make their output decisions at the same time. a) If a collusion occurs between both firms, will it be better or not? Explain your answers. Please proof by using a mathematical equation that explain before and after a collusion. (10 points) b) What advantages the first firm as a first mover will have if this firm sets its output first than the other firm? Explain and support your...

Two firms are competing in an oligopolistic industry. Firm 1, the larger of the two firms...

Two firms are competing in an oligopolistic industry. Firm 1, the larger of the two firms are contemplating its capacity strategy, which could be either “aggressive” or “ passive”. Firm 2, the smaller competitor, is also pondering its capacity expansion strategy and a passive strategy. The following table shows the profits associated with each pair of choices: Firm 1 Firm 2 Aggressive Passive Aggressive 25, 9 33, 10 Passive 30, 13 36, 12 a. If both decide their strategies simultaneously,...

Consider two identical firms competing as Cournot oligopolists in a market with demand p(Q)=100-0.5Q. Both firms...

Consider two identical firms competing as Cournot oligopolists in a market with demand p(Q)=100-0.5Q. Both firms have total costs,TC=10q where 10 is the marginal cost of production. ( Here Q represents total output in the market whereas q represents firm level output.) (b) Now assume that the firms collude. They again play a one-shot game. What is the output that each firm should produce in order to sustain the collusion? Find the market price, and profits of each firm. Are...

Two firms are price-competing as in the standard Bertrand model. Each faces the market demand function...

Two firms are price-competing as in the standard Bertrand model. Each faces the market demand function D(p)=50-p. Firm 1 has constant marginal cost c1=10 and firm 2 has c2=20. As usual, if one of the firms has the lower price, they capture the entire market, and when they both charge exactly the same price they share the demand equally. 1. Suppose A1=A2={0.00, 0.01, 0.02,...,100.00}. That is, instead of any real number, we force prices to be listed in whole cents....

Horizontal Mergers. Consider a market that initially has two firms selling differentiated products and competing in...

Horizontal Mergers. Consider a market that initially has two firms selling differentiated products and competing in prices. The cost of production of each firm is C(q)=0. Demand for the two goods is given by the following system: q1=420-4p1+p2 q2=420-4p2+p1 The goal of this question is to find by how much the prices of the goods will increase if the firms horizontally merge. To do this, we first derive the equilibrium prices before the merger, and then compare with the optimal...

Assume in a Bertrand model, there are 3 identical firms in the market with the same...

Assume in a Bertrand model, there are 3 identical firms in the market with the same constant marginal cost of 30. The demand function is P = 150 ? Q. Firms share the monopoly profit equally if they participate in the cartel. With probability 0.3 the cartel is detected by the end of period t, in which case each cartel member has to pay the fine $1000. Cartel investigation takes one period. If detected by the end of period t,...

Assume in a Cournot model, there are 3 identical firms in the market with the same...

Assume in a Cournot model, there are 3 identical firms in the market with the same constant marginal cost of 30. The demand function is P = 150 ? Q. Firms share the monopoly profit equally if they participate in the cartel. Suppose that the market game is now repeated indefinitely. Derive the condition under which the collusion/cartel will be successful. (Hint: show the range of the probability adjusted discount factor ? that makes the cartel sustainable.)

Problem 2. Assume the market is perfectly competitive. There are 100 firms currently operating in the...

Problem 2. Assume the market is perfectly competitive. There are 100 firms currently operating in the market. The cost function for each firm is given by c(q) = 25 + 2q + q 2 , and the demand function is Q = 1024−2p. • Derive the current market price and total output in equilibrium. (Hint: Q = 100q) • Given the above answer, is the market in the long-run equilibrium right now? If not, what are the equilibrium levels of...

Assume two firms in a relevant antitrust market each have 20% market share, three other firms...

Assume two firms in a relevant antitrust market each have 20% market share, three other firms each have 15% market share, one firm has 10% market share, and one firm has 5% market share. Compute the pre-merger HHI. If the two largest firms propose to merge and offer to divest a plant equal to 10% market share to the smallest market share firm in the market, what is the post-merger, post-divestiture HHI and change in HHI? Would you expect the...

Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q...

Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q where Q isthe aggregate output in the market and P is the price. Firm 1 has the cost function TC(Q1)=30 + 10Q1 and Firm 2 has the cost function TC(Q2)=15 + 20Q2. a) Write down the Profit function of Firm 1: Profit function of Firm 2: b) Using the profit functions in part (a), obtain the reaction function of Firm 1 to Firm 2....

Question