Question 1

What type of cooperation-inducing strategy is defined as one so compelling that that a firm would expect all other firms to adopt it?
A) Backward induction
B) Focal point
C) Always aggress
D) Coordination
E) Folk

Accepted Answer

This type of cooperation-inducing strategy is known as a "focal point." It is a strategy that is so compelling or obvious that all other firms would expect it to be adopted. This can help to induce cooperation among firms because they know what to expect and can coordinate their actions accordingly. Backward induction involves predicting what other firms will do and adjusting strategies accordingly. Always aggress and coordination are not specific types of cooperation-inducing strategies. Folk is not a relevant term in this context.

Question 2

What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?
A) Tough commitment
B) Strategic complement
C) Soft commitment
D) Strategic substitute
E) Duopoly

Accepted Answer

The situation described is an example of strategic substitution, where Toyota and Honda are competitors in the small SUV market and the production of the CR-V by Honda represents a substitute for the Rav 4 produced by Toyota. Toyota's response to a large increase in production of the CR-V and subsequent price reduction would be to reduce its production output of the Rav 4 to avoid excess inventory and maintain profit margins.

Question 3

Which of the following statements is true about a soft commitment?
A) It is bad for competitors
B) It is good for competitors
C) In Cournot competition, capacity expansion is an example of a soft commitment
D) In Betrand competition, a commitment to reduce prices is an example of a soft commitment
E) Tough commitments are always in the best interest of a firm

Accepted Answer

B

Question 4

What type of effect describes how a commitment impacts the present value of the firm's profits,assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor's behavior does not change?
A) Tactical effect
B) Financial effect
C) Direct effect
D) Strategic effect
E) Indirect effect

Accepted Answer

The answer of What type of effect describes how a...

Question 5

Which of the following practices can help firms facilitate cooperative pricing?
A) Price leadership
B) Advance announcement of price changes
C) Price following
D) Most favored customer clauses
E) Uniform delivered prices

Accepted Answer

The answer of Which of the following practices can help...

Question 6

Which of the following commitment strategies involves soft commitment postures,strategic complements for the stage 2 tactical variables,a refrain commitment action and an acceptance of the status quo out of fear thus waiting to follow the leader?
A) Top Dog
B) Lean and Hungry Look
C) Mad Dog
D) Puppy-Dog Ploy
E) Fat-Cat Effect

Accepted Answer

The answer of Which of the following commitment strategies involves...

Question 7

Which of the following is an example of a market where barometric price leadership occurs?
A) Breakfast cereal
B) Prime-rate loan
C) Tobacco
D) Steel until 1960s
E) Fast food hamburger

Accepted Answer

The answer of Which of the following is an example...

Question 8

What is a grim trigger strategy in a two firm repeated game?
A) A strategy where a firm will always aggress regardless of how the other firm acts
B) A strategy where a firm will always cooperate regardless of how the other firm acts
C) A strategy in which a firm is prepared to match whatever changes in strategy the competitor makes
D) A strategy in which a firm initially cooperates and then aggresses for the rest of the game as soon as the opponent aggresses
E) A strategy in which a firm is prepared to aggress when its opponent cooperates and cooperate when its opponent aggresses

Accepted Answer

A grim trigger strategy involves a firm initially cooperating and then aggressing for the rest of the game as soon as the opponent aggresses. The grim trigger strategy is used to deter the opponent from choosing the aggressive option, as it would lead to a long-term outcome where both firms aggress, which is suboptimal for both firms. Therefore, the best choice is D.

Question 9

Which of the following statements is true about a tough commitment?
A) It is good for competitors
B) It is bad for competitors
C) In Cournot competition, elimination of production facilities is an example of a tough commitment
D) In Betrand competition, a commitment to increase prices is an example of a tough commitment
E) Tough commitments are always in the best interest of a firm

Accepted Answer

The answer of Which of the following statements is true...

Question 10

What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?
A) Response strategy
B) Always cooperate strategy
C) Always aggress strategy
D) Tit-for-tat strategy
E) Trigger strategy

Accepted Answer

The policy that describes a firm being prepared to match whatever change in strategy a competitor makes is a tit-for-tat strategy. This strategy involves responding to competitive moves with similar actions, in order to deter the competitor from further actions.

Question 11

Given the following payoff diagram:

How much can firm 1 improve its outcome by committing to a strategy thus transforming the simultaneous move game to a sequential move game?
A) 5
B) 10
C) 15
D) 20
E) 20.

Accepted Answer

The answer of Given the following payoff diagram:

How much...

Question 12

Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price?
A) Price umbrella
B) Price leading
C) Predatory pricing
D) Premium pricing
E) Price lining

Accepted Answer

The term that describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price is price umbrella. This occurs when the dominant firm sets a higher price for its products, and smaller firms can price their products lower and still find buyers because they are under the price umbrella created by the dominant firm.

Question 13

Why might a firm not be able to react quickly to competitors' pricing moves?
A) Lags in detecting competitors' prices
B) Infrequent interactions with competitors
C) Ambiguities in identifying which firm among a group of firms in a market is cutting price
D) Difficulties distinguishing drops in volume due to price cutting by rivals from drops in volume due to anticipated decreases in market demand
E) All of the above

Accepted Answer

All the options listed above contribute to difficulties in reacting quickly to competitors' pricing moves. Lags in detecting competitors' prices, infrequent interactions with competitors, ambiguities in identifying which firm among a group of firms in a market is cutting price, and difficulties distinguishing drops in volume due to price cutting by rivals from drops in volume due to anticipated decreases in market demand all make it harder for a firm to respond quickly to competitors' pricing moves.

Question 14

What term describes a decision that has a long-term impact and is difficult to reverse?
A) Dedicated investment
B) Strategic commitment
C) Critical choice
D) Market investment
E) Firm commitment

Accepted Answer

The answer of What term describes a decision that has...

Question 15

What type of clause is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges?
A) Low price clause
B) Price matching clause
C) Best price clause
D) Most favored customer clause
E) Competitive price clause

Accepted Answer

This is known as a "Most favored customer clause." It ensures that the buyer will receive the best price the seller offers, matching or improving upon the prices given to other customers.

Question 16

What term refers to situations in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game?
A) Dedicated pricing
B) Strategic pricing
C) Marginal pricing
D) Cost-plus pricing
E) Cooperative pricing

Accepted Answer

The answer of What term refers to situations in which...

Question 17

Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?
A) Price cutting is easier to detect when demand conditions are volatile
B) Pricing coordination becomes easier in a volatile demand condition because firms are chasing a moving target
C) Price cutting is harder to detect when demand conditions are stable
D) Demand volatility is an especially serious problem when the production involves substantial variable costs
E) Demand volatility is an especially serious problem when the production involves substantial fixed costs

Accepted Answer

When demand conditions are volatile, it becomes difficult to predict and plan for production levels. This is especially problematic when the production involves substantial fixed costs, such as building a factory or purchasing equipment. In such cases, firms may be unable to adjust their production quickly enough to match changes in demand, leading to excess inventory or underutilization of capacity. This makes cooperative pricing harder to sustain because firms may feel pressure to cut prices in order to move excess inventory or generate revenue to cover fixed costs.

Question 18

Why do price-sensitive buyers tend to harm cooperative pricing in a market?
A) They cause an increase in detection lags because competitor prices become more difficult to monitor
B) There is a resultant decrease in the frequency of interaction between competitors
C) There is an increase in the probability of misreads
D) The is an increase in temptation to cut price, even if competitors are expected to match
E) There is an increase in detection lags because prices of competitors are more difficult to monitor

Accepted Answer

Price-sensitive buyers are those who are particularly sensitive to prices of goods and services. When these buyers are present in a market, competitors may feel a temptation to cut prices as a means of attracting them. This can lead to a situation where cooperative pricing is undermined, even if competitors are expected to match each other's prices. Therefore, choice D (There is an increase in temptation to cut price, even if competitors are expected to match) is the best explanation for why price-sensitive buyers tend to harm cooperative pricing in a market.

Question 19

Which set of advice below should a manager disregard when seeking pricing stability that is least likely to suffer from antitrust legislation?
A) All pricing decisions should be made unilaterally. Avoid direct contacts with competitors about price
B) Carefully handle public pricing communications
C) Always share analyses of probably competitive reactions
D) Monitor the content. Announce price changes; do not lecture competitors about the need to raise prices or consequences of reducing them
E) Clear your pricing tactics with an attorney well versed in antitrust law

Accepted Answer

Sharing analyses of probable competitive reactions could be seen as colluding with competitors to set prices, which violates antitrust laws. The other options provide helpful advice for avoiding antitrust violations when seeking pricing stability.

Question 20

What type of pricing involves a firm quoting a single delivered price for all buyers with the firm absorbing any freight charges itself?
A) Uniform delivered pricing
B) Uniform FOB pricing
C) Uniform customer pricing
D) Uniform favored pricing
E) Uniform competitive pricing

Accepted Answer

Uniform delivered pricing involves a firm quoting a single delivered price for all buyers with the firm absorbing any freight charges itself.

Quiz 7: The Dynamics Competing Across Time

What type of cooperation-inducing strategy is defined as one so compelling that that a firm would expect all other firms to adopt it?

What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?

Which of the following statements is true about a soft commitment?

What type of effect describes how a commitment impacts the present value of the firm's profits,assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor's behavior does not change?

Which of the following practices can help firms facilitate cooperative pricing?

Which of the following commitment strategies involves soft commitment postures,strategic complements for the stage 2 tactical variables,a refrain commitment action and an acceptance of the status quo out of fear thus waiting to follow the leader?

Which of the following is an example of a market where barometric price leadership occurs?

What is a grim trigger strategy in a two firm repeated game?

Which of the following statements is true about a tough commitment?

What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?

Given the following payoff diagram: How much can firm 1 improve its outcome by committing to a strategy thus transforming the simultaneous move game to a sequential move game?

Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price?

Why might a firm not be able to react quickly to competitors' pricing moves?

What term describes a decision that has a long-term impact and is difficult to reverse?

What type of clause is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges?

What term refers to situations in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game?

Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?

Why do price-sensitive buyers tend to harm cooperative pricing in a market?

Which set of advice below should a manager disregard when seeking pricing stability that is least likely to suffer from antitrust legislation?

What type of pricing involves a firm quoting a single delivered price for all buyers with the firm absorbing any freight charges itself?