Suppose the market for smartphones in Australia is oligopolistic with three firms owning the entire market: Apple, Samsung and Google.

(a) Suppose all the products are unbranded (homogeneous) and all three firms have similar cost functions. What would be the best outcome for consumers in this market and what is the best outcome for the three oligopolists? Which one is the efficient outcome?

(b) Suppose Apple can differentiate its smartphone by using a different operating system than the other two firms. This would increase the marginal cost of Apple to a point above the other two firms. How would your answers to part (a) change?

(c) Suppose all three firms have different cost functions and heterogeneous products. What would be the predicted outcome in this case?