# Module 3 – Case

## Market Structure and Game Theory

### Assignment Overview

As always, make sure to thoroughly review the required background
materials before starting the assignments. The assignment questions
will require you to do some calculations and also apply the concepts
from the module. Question 3 differs from previous assignments in that
you have to use an online simulation tool; but this activity should be a
fun break from the standard numerical problems you have been doing.

### Case Assignment

1. For this problem use the Herfindahl Index to compute market concentration:
1. Suppose Apple has 45% of the U.S. market share for smartphones,
followed by Samsung with 30%, LG with 9%, Motorola with 8%, HTC with 6%,
and Nokia with 2%. What is the Herfindahl Index for the smartphone
industry based on these numbers? Based on the Herfindahl Index, do you
think the government would be willing to approve a merger between Apple
and Samsung?
2. Now suppose Nokia and Motorola come out with a new smartphone that
takes away a huge chunk of market share from Apple and Samsung. The new
market shares are 25% for Apple, 20% for Samsung, 20% for Motorola, 20%
for Nokia, 10% for LG, and 5% for HTC.
2. Use what you learned about perfect competition, monopoly, and oligopoly to answer these questions:
1. In the table below is the quantity produced, the price, the fixed
costs, and variable costs for a perfectly competitive firm that faces a
constant price of \$150 for its product regardless of the quantity it
sells. Use the information in the first four columns to calculate the
number for the last four columns. At what quantity should they produce
based on what you find with your results?
2. How do you think your answer might change if it became a monopolist
with all of its competitors leaving the market? Or if it became an
oligopoly with only one or two competitors?
 Quantity Price Fixed Cost Variable Cost Total Cost Marginal Cost Total Revenue Profit/ Loss 0 150 200 – – 1 150 200 \$140 2 150 200 \$240 3 150 200 \$320 4 150 200 \$410 5 150 200 \$520 6 150 200 \$650 7 150 200 \$810 8 150 200 \$1,010 9 150 200 \$1,310 10 150 200 \$1,710

will both be more profitable. However, if your competitor lowers its
prices and you keep your prices high, then you will lose all of your
decide each month whether or not to keep prices high, or lower them
based on what you think your competitor might do.

Go to the following webpage and test out some of your potential price strategies:
http://www.gametheory.net/Mike/applets/PDilemma/Pdilemma.html

The
strategy “defect” indicates lowering your prices. The strategy
“cooperate” means keep prices the same. Try out different strategies,
such as cooperating all the time or defecting sometimes. There are five
different rounds of this game, each with a competitor with different
personalities and different strategies. Play all five rounds and
experiment with different strategic approaches. Report your scores for
each round, and discuss which strategies seemed to work the best for
you.