Chapter 14: Problem 2
How are decision trees used to analyze sequential games?
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Chapter 14: Problem 2
How are decision trees used to analyze sequential games?
These are the key concepts you need to understand to accurately answer the question.
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Alfred Chandler, who was a professor at the Harvard Business School, once observed, "Imagine the diseconomies of scale- the great increase in unit costs- that would result from placing close to one-fourth of the world's production of shoes, or textiles, or lumber into three factories or mills!" The shoe, textile, and lumber industries are very competitive, with many firms producing each of these products. Briefly explain how Chandler's observation helps explain why these industries are competitive.
(Related to Solved Problem 14.2 on page 487 ) UPS and FedEx both struggle to deliver the surge of packages they receive during the December holiday season. According to an article in the Wall Street Journal, in 2014 , both firms considered charging Amazon and other firms rates that would be 10 percent higher for packages delivered during the week before Christmas. Such higher rates would likely have increased the profits of both firms. Neither UPS nor FedEx actually raised rates during the 2014 holiday season, but both firms did raise them during the 2016 holiday season. Use game theory to explain why in 2014 neither firm raised rates during the holiday season, but two years later both firms did.
An article in Forbes described these characteristics of the airline industry: "Airlines aren't like normal consumer businesses.... Infrastructure including aircraft, gates and runways takes years to put in place. Capacity rebalancing in response to demand shifts isn't easy and idle infrastructure of this magnitude is very expensive." Do the characteristics referred to in the article help explain why the airline industry is an oligopoly? Briefly explain.
In the Apple first launched Apple Music, singer Taylor Swift refused to allow her album \(1989,\) which had been the best-selling album of the year, to be made available for the service because Apple did not intend to pay royalties on songs it streamed during an initial three-month period when the service would be free to subscribers. In response, Apple changed its policy and agreed to pay royalties during those three months, even though doing so reduced its profit. Do singers typically have substantial bargaining power with Apple, Spotify, and the other streaming services? Briefly explain.
What is the difference between explicit collusion and implicit collusion? Give an example of each. What is a cartel?
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