Which of the following is not an implication of oligopoly interdependence: strat
ID: 1198414 • Letter: W
Question
Which of the following is not an implication of oligopoly interdependence: strategic behavior the need to get into the heads of rival managers making decisions that result in the equating of marginal revenue and marginal cost thinking ahead in sequential decisions to anticipate rivals' future actions A conditional strategic move, such as a threat or promise, can be credible only if rivals believe the manager making the threat or promise can be trusted to follow through on any commitment, threat, or promise that he or she makes. the strategic move harms rivals. it can increase each firm's payoff. when the time comes to carry out the threat or promise, fulfilling the threat or promise is in the best interest of the firm making the threat or promise. none of the above.Explanation / Answer
Answer of part 1:
Oligopoly is a market of few sellers. Each of them has some control on the market demand. But no one can ignore rival. Thus while taking the oprtimum decision, a firm must consider the action of its rival. Thus strategic decision of an oligopolist, need to go into the heads of rival managers or thinking ahead in sequential decision alll these actions are due to features of oligopolistic interdependence.
But consider the option (c). Firm wants to equalize marginal revenue and marginal cost. It is applicable in all market environment. Whenever a firm wants to maximize its profit or minimize some variables like cost, it has to fulfil this condition. Market condition is immaterial here. It is known as necessary condition of optimization.
Answer: Option (c) is correct.
---------------------------------------------------------------------------------------------------------------------------------------
Answer of part (2):
Strategic move is a concept used in game theory. It is an action which will give some benefit to a firm. A firm by restricting its own choice can make other firm to take some specific action. Suppose there are two products A and B. the firm introducing A first will gain the most. Firm 1 wants to do that. If it simply announce that it will introduce it first then firm 2 will not believe. Similarly if firm 1 puts a threat on firm 2 for not to introduce it first, then also it will not hold much water.
But suppose firm 1, well before its introduction, has spent huge money on advertisement, then it is automatically projecting an idea that it is committed to introduce it. With such huge spending’s firm cannot revert its decision.
Thus option (a) is correct. This commitment will make rival believe that promise or threat is not false.
Now consider other options. In option (b) it has been stated that strategic move harms rival. In that case rival will never respond to your strategic move and will do the opposite. So it is immaterial for him to think whether the threat or promise of other party is true or false.
Next option is strategic move will increase each firms pay off. In that case rival firm will automatically do it. There is no need for promise or threat.
In point (d) firm will carry out the threat or promise when the time comes. Remember rival will take decision before the time comes. So what you are doing when the time comes is of no use in influencing rivals decision.
Answer: Therefore option (a) is correct.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.