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2013 MT#2

1. Bertrand’s model of duopoly competition suggests that we need not always fear being ripped of when (say) HHI > 0.5. Illustrate [literally] and explain when that argument is only partially true.

2. In Japan in the early 20th century, the Cotton Spinners Association carefully collected data on each plant of its members – items such as capacity, output, and wages – and published them monthly. How might this affect the ability of the producers of cotton yarn to operate a cartel? Spell out your logic and link it to the arguments in our text.

3. Claim: In theory, predation does not make sense.

Response: The book provides actual cases of predation. Is the theory thus “wrong”? (Please, no metaeconomics about “truth” and methodology!)

4. Claim: In theory, the threat of entry forces a firm to offer an approximation of competitive pricing, even when it is the only firm in the market. So while we’ve argued that oligopoly need not hurt consumers, this “contestable market” hypothesis (due to Baumol) turns it into a statement about all market structures.

Response: It depends. For example, when …

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