Chapter 10

17 Questions | Total Attempts: 523

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Chapter 10

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Questions and Answers
  • 1. 
    • A. 

      Dedicated pricing

    • B. 

      Strategic pricing

    • C. 

      Marginal pricing

    • D. 

      Cost-plus pricing

    • E. 

      Cooperative pricing

  • 2. 
    What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?
    • A. 

      Response strategy

    • B. 

      Always cooperative strategy

    • C. 

      Always aggress strategy

    • D. 

      Tit-for-tat strategy

    • E. 

      Trigger strategy

  • 3. 
    Which special case term describes the situation where for sufficiently low discount rates, any price between the monopoly price and marginal cost can be sustained as an equilibrium in the infinitely repeated prisoner’s dilemma game?
    • A. 

      Collusive agreement

    • B. 

      Centipede Game

    • C. 

      Folk Theorem

    • D. 

      War of Attrition

    • E. 

      Focal Point

  • 4. 
    What type of cooperation-inducing strategy is defined as one so compelling that a firm would expect all other firms to adopt it?
    • A. 

      Backward induction

    • B. 

      Focal point

    • C. 

      Always aggress

    • D. 

      Coordination

    • E. 

      Folk

  • 5. 
    Which of the following would not help facilitate coordination of pricing across firms in an industry?
    • A. 

      Predatory pricing

    • B. 

      Firms settling on round number price points and price increase increments

    • C. 

      Using a single industry multiplier across firms to give discounts

    • D. 

      Using a standard cycle for adjusting prices

    • E. 

      Collusion

  • 6. 
    What is a grim trigger strategy in a two firm repeated game?
    • A. 

      A strategy where a firm will always aggress regardless of how the other firm acts

    • B. 

      A strategy where a firm will always cooperate regardless of how the other firm acts

    • C. 

      A strategy in which a firm is prepared to match whatever changes in strategy the competitor makes

    • D. 

      A strategy in which a firm initially cooperates and then aggresses for the rest of the game as soon as the opponent aggresses

    • E. 

      A strategy in which a firm is prepared to aggress when its opponent cooperates and cooperate when its opponent aggresses

  • 7. 
    According to Dixit and Nalebuff, when misreads are possible, what kind of strategies in general are more desirable to use?
    • A. 

      Strategies more provocable and less forgiving than tit-for-tat

    • B. 

      Strategies less provocable and more forgiving than tit-for-tat

    • C. 

      Strategies equally provocable and equally forgiving as tit-for-tat

    • D. 

      Grim trigger strategies

    • E. 

      Always aggress strategies

  • 8. 
    In what situation are the Department of Justice and Federal Trade Commission most likely to challenge the merge between two competitors?
    • A. 

      When the Herfindahl index is close to 0 and the number of firms is large

    • B. 

      When targeted price discounts can be implemented by rival firms

    • C. 

      When the merge threatens to substantially increase market concentration

    • D. 

      When the merge threatens to substantially decrease market concentration

    • E. 

      In a large industry with many competitors, each having a relatively equal market share

  • 9. 
    Why might a firm not be able to react quickly to competitors’ pricing moves?
    • A. 

      Lags in detecting competitors’ prices

    • B. 

      Infrequent interactions with competitors

    • C. 

      Ambiguities in identifying which firm among a group of firms in a market is cutting price

    • D. 

      Difficulties distinguishing drops in volume due to price cutting by rivals from drops in volume due to anticipated decreases in market demand

    • E. 

      All of the above

  • 10. 
    In which of the following industries are competitive pricing interactions not affected by lumpy orders?
    • A. 

      Office supply

    • B. 

      Airframe Manufacturing

    • C. 

      Shipbuilding

    • D. 

      Supercomputing

    • E. 

      Automobile seat manufacturing

  • 11. 
    In which of the following industries do more “public” sales transactions enhance the likelihood of sustained cooperative pricing?
    • A. 

      Airframe manufacturing

    • B. 

      Diesel locomotive production

    • C. 

      Airline travel

    • D. 

      Shipbuilding

    • E. 

      Home construction

  • 12. 
    Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?
    • A. 

      Price cutting is easier to detect when demand conditions are volatile

    • B. 

      Pricing condition becomes easier in a volatile demand condition because firms are chasing a moving target

    • C. 

      Price cutting is harder to detect when demand conditions are stable

    • D. 

      Demand volatility is an especially serious problem when the production involves substantial variable costs

    • E. 

      Demand volatility is an especially serious problem when the production involves substantial fixed costs

  • 13. 
    Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price?
    • A. 

      Price umbrella

    • B. 

      Price leading

    • C. 

      Predatory pricing

    • D. 

      Premium pricing

    • E. 

      Price lining

  • 14. 
    Why do price-sensitive buyers tend to harm cooperative pricing in a market?
    • A. 

      They cause an increase in detection lags because competitor prices become more difficult to monitor

    • B. 

      There is a resultant decrease in the frequency of interaction between competitors

    • C. 

      There is an increase in the probability of misreads

    • D. 

      There is an increase in temptation to cut price, even if competitors are expected to match

    • E. 

      There is an increase in detection lags because prices of competitors are more difficult to monitor

  • 15. 
    Which of the following market condition does not contribute to the low profitability of the heavy-duty truck engine industry?
    • A. 

      Secrecy of sales terms

    • B. 

      Significant threat of entry

    • C. 

      Complexity of sales terms

    • D. 

      Lumpiness of tuck engine orders

    • E. 

      Fleet-buyers are price sensitive

  • 16. 
    • A. 

      Price leadership

    • B. 

      Advance announcement of price changes

    • C. 

      Price following

    • D. 

      Most favored customer clauses

    • E. 

      Uniform delivered prices

  • 17. 
    Which of the following is an example of a market where barometric price leadership occurs?
    • A. 

      Breakfast cereal

    • B. 

      Prime-rate loan

    • C. 

      Tobacco

    • D. 

      Steel until 1960s

    • E. 

      Fast food hamburger