Consider the following payoff matrix in which the numbers indicate the profit in millions of dollars for an oligopoly based on either a high-price or a low-price strategy.

a.Situation 1:Each firm chooses a high-price strategy.

Result:Each firm will earn $_million in profit for a total of $_million for the two firms.

b.Situation 2:Firm X chooses a low-price strategy while Firm Y maintains a high-price strategy.

Result: Firm X will earn $_______ million and Firm Y will earn $_______ million. Compared to Situation 1, Firm X has an incentive to cut prices because it will earn $_______ million more in profit and Firm Y will earn $_______ million less in profit. Together, the firms will earn $_______ million in profit, which is $_______ million less than in Situation 1.

c.Situation 3: Each firm chooses a lo dominant strategy.

Result: Each firm will earn $________ million in profit for a total of $________ million for the two firms. This total is $________ less than in Situation 1.

Suppose that the distribution of sales within an industry is as shown in the table.

1.Calculate the four-firm concentration ratio for this industry.

2.Calculate the Herfindahl Hirschman Index (HHI). for this industry

How can an oligopoly form when there are network effects and market feedback?

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