Calculate the production with antitrust laws, Macroeconomics

The following Table summarizes the profits of two firms as a function of their capacity investments levels (you can also interpret these levels as the quantities they produce):

          qB =   0 qB =   1 qB = 2 qB = 3

qA =0   0; 0    0;12       0; 20    0; 18

qA =1  12; 0   10;10    6; 13    4; 12

qA =2  20; 0   13;6      8; 8        3; 4

qA =3  19; 0   12;4      4; 3        0; 0

(a) Suppose that both firms invest simultaneously. How much would they produce if they could credibly commit by signing a binding contract?

Explain briefly.

(b) How much would they produce if, because of antitrust laws, such contract is not legally enforceable? Explain briefly.

(c) Suppose instead that firm A is an incumbent, who invests first, and firm B is a potential new entrant, which knows the level of A's investment when it selects its own level. Provide the extensive form representation of this game and obtain the corresponding perfect equilibrium strategies of both firms. Which are their corresponding equilibrium payoffs? Is this outcome one of blockaded, deterred or accommodated entry?

(d) Consider the scenario described in (c) but now suppose that .rm B has to incur an entry cost which reduces its profit in 5, a cost that can only be avoided by not entering the market (i.e.: when B's production level is 0). Everything else remains as above. Answer question (c) in this new scenario.

Posted Date: 3/22/2013 6:38:54 AM | Location : United States

Related Discussions:- Calculate the production with antitrust laws, Assignment Help, Ask Question on Calculate the production with antitrust laws, Get Answer, Expert's Help, Calculate the production with antitrust laws Discussions

Write discussion on Calculate the production with antitrust laws
Your posts are moderated
Related Questions
What is Purchasing power One problem in using exchange rate when comparing GDP per capita between countries is that is fluctuates quite a lot. A way of avoiding dependence on

This assignment lets you explore a quasi-experimental model using ANCOVA data analytical approach. By doing this data analysis project, you will understand a new quantitative resea

In order to estimate the VAR, I have firstly to specify the data which will be analysed. As it is my aim to observe the correlations between oil prices and key macroeconomic variab

Assume that the required reserve ratio is 0.12 for deposits & there are no excess reserves. Assume that the total demand for currency is equal to 0.3 times deposits. a) If t

Singer suggests that although the right to sell blood does not threaten the formal right to give blood, it is incompatible with "the right to give blood, which cannot be bought, wh

Money is anything which is acceptable in settlement of a debt. But, paradoxically, the main asset used to settle debts in modern economies is other debts. After all, bank deposits

Beverly enterprises owns a nursing home that is currently earning $2.0 million in cash flow on an annual basis, but this amount is expected to drop in the future. The nursing home


Suppose that Lilistan has two types of citizens: low-income citizens (income = $20,000) and high-income citizens (income = $80,000). Interest income is currently taxed and each typ

1 ) GDP Consumption 240 244 250