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5303c

5303c

4 pages 

1. For this problem use the Herfindahl Index to compute market concentration:

  1. 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?
  2. 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. question is in attached below 

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.

reference 

McGlasson, M. (2009). Episode 25: Market structures. https://www.youtube.com/watch?v=9Hxy-TuX9fs&list=PLr6g_xbkz_0u_cINHBVW1ZuEpozKk2XGx

Taylor, T. (2014) Microeconomics. OpenStax College. http://cnx.org/contents/6i8iXmBj@10.174:WXgRcPaN@10/Introduction-to-a-Monopoly 

Beveridge, T. M. (2013). Chapter 8: Between perfect competition and monopoly. A Primer on Microeconomics. [New York, N.Y.] [222 East 46th Street, New York, NY 10017]: Business Expert Press.