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ECON2005 Industrial Economics 2 SEMESTER 2 EXAMINATIONS 2023/24
发布时间：2024-05-11
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SEMESTER 2 EXAMINATIONS 2023/24
ECON2005 Industrial Economics 2
1. Consider a two-stage Stackleberg duopoly market game. In stage one, firm 1 chooses output quantity q1 ≥ 0. In stage two, firm 2 chooses output quantity q2 ≥ 0 after observing q1 . The market inverse demand function is P = 17 − Q, where p is the market price and Q = q1 +q2 is the total output. The two firms’ total cost functions are Ci (qi ) = qi + fi for i = 1, 2, where fi ≥ 0 is the fixed cost component. Firm 1 is an incumbent and its fixed cost f1 is sunk at the beginning of the game. Firm 2 has to incur f2 if and only if q2 > 0.
(a) Derive the best response of firm 2 in stage 2, conditional on q2 > 0. Analyse the market outcome if firm 1 chooses to accom-modate entry, and calculate the two firms’ outputs and profits, and market price. [10]
(b) Derive firm 1’s limit output q1(l) as a function of f2 . Calculate firm 1’s output q1(m) if it is a monopoly. Suppose fi = f = 16.
Solve for the subgame perfect Nash equilibrium of the game. Calculate the equilibrium outputs of the two firms, and market price. [10]
(c) Now suppose fi = f −s, where s is a government subsidy or in-vestment in infrastructure/technology, which reduces the size of fixed cost to private firms. Let f = 16 and s = 15. Solve for the subgame perfect Nash equilibrium of this game. Calculate the equilibrium outputs of the two firms, and market price. Com- ment on the effects of government subsidy/investment policy with s on market outcomes. [20]
2. When the number of competing firms is small in a market, does this market perform differently from a perfectly competitive market in terms of market power and efficiency? Develop your in-depth anal-ysis and argument on the basis of relevant economic theory and/or models (e.g., classic oligopoly models). Also discuss and explain how market power can empirically and practically (from a competi- tion policy point of view) be assessed. [30]
3. The following is a quote from Bain (1956): “It has been argued in general that in [concentrated] industries there is a definite ten-dency (via express or tacit collusion or recognized interdependence) for sellers to act ‘collectively’ or in unison in establishing prices and outputs, whereas in [non-concentrated] industries any attempted collusion will fail.” Use a supergame model of collusion to formalise and help explain the insight of Bain’s statement, and draw its im-plications for merger control policy. [30]
4. “A necessary element for predation is the ability to more than com-pensate – after the exclusion of the competitor – for the sacrifice of profit during the predation episode.” Present arguments against and for the plausibility of above-mentioned ability of a dominant firm. Whenever suitable, make your arguments on the basis of relevant theoretical models and empirical evidence. [30]
5. In the “Merger Guidelines, 2023” (issued by US DOJ and FTC, click here), Guideline 9 (p. 3) states: “When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform.” Section 2.9 of the Guildes, (p. 23) writes: “Platforms provide different prod- ucts or services to two or more different groups or “sides” who may benefit from each other’s participation. Mergers involving platforms can threaten competition, even when a platform merges with a firm that is neither a direct competitor nor in a traditional vertical rela- tionship with the platform.” Use the concepts of “multi-sidedness of platform” and “network effect” to analyse and critically assess the two quoted statements above. [30]
