Question

In: Economics

(a) A market has a Herfindahl index of 3100. Is this market competitive, moderately oligopolistic or...

  1. (a) A market has a Herfindahl index of 3100. Is this market competitive, moderately oligopolistic or highly oligopolistic?

(b) According to the kinked demand curve model, will firms engage in price competition or nonprice competition?

(c) Is the price leadership model a model of tacit collusion or explicit collusion?

(d) In the Cournot model, do firms produce standardized or differentiated products?

(e) Are cartels most successful if they are producing standardized or differentiated products?

Solutions

Expert Solution

A.

Accordingly to the guidelines of department of justice, HHI (Herfindahl index) score of more that 2500 constitutes a highly concentrated market. In the given scenario the HHI is 3100. It makes market to be highly concentrated. So, the market is highly oligopolistic.

B.

As per the given model, firms engage in non-price competition, because changing the price by one firm, will be similarly responded by the other firms and it will not give any benefit to the firm. So, it is important to focus upon advertising,  improved quality of the products among the other.

If price is decreased, then other firms will also decrease the price and sales will remain same. If price is increased, then other firms will not respond and market share will be lost by the firm that increased the price. So, price based competition does not take place.

Pl. repost other unanswered questions for their proper answers!

Rahul Sunny answered 2 years ago
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