MARKET STRUCTURE Average Revenue (AR) – the revenue earned

per unit of output.

- MPO P=MC
2. Unregulated monopoly
PERFECT COMPETITION AND MONOPOLY - Not subject to social regulation
AR = TR/Q - Earns more profit
Market Structure – refers to the competitive - MPO P> (MR=MC)
environment in which the buyers and sellers of Marginal Revenue (MR) – the additional
the product operate. revenue earned in producing an additional unit
The market structures are defined in terms of: MONOPOLISTIC COMPETITION
of output.
- Number and size of buyers and sellers of the AND OLIGOPOLY
product MR = ∆TR/∆Q = TR₂ - TR₁ / Q₂ - Q₁
- Type of product bought and sold 1. Monopolistic Competition
- Degree of mobility of resources Per unit Profit/Loss: Characteristics:
- Degree of knowledge that economic agents P or AR > ATC = Economic Profit - Relatively large number of sellers
have of prices and costs, and demand and P or AR < ATC = Loss - Differentiated products
supply conditions P or AR = ATC = Break-even - Very limited amount of control over the
market price
Types of Market Structures 2. Monopoly - Relatively easy entry into and exit from the
Four Basic reasons that give rise to monopoly market
1. Perfect Competition 1. Control over the supply of raw materials - There is non-price competition like
Characteristics: required to produce the product. advertising, promotion.
- There are large buyers and sellers of a 2. Patent/copyright precludes other firms
product, each too small to affect the price from using a particular production process EXAMPLES: Retail and service sectors, food
- Price taker or producing the same product processing industries, clothing and textile
- Product is homogenous 3. Economies of scale: firm operate over a
- There is perfect mobility of resources sufficiently large range of outputs as to Short-Run Profit Maximization - in
- Economic agents have perfect knowledge of leave only one firm supplying the entire monopolistic competition, each firm must
market conditions market. choose a price, quantity and degree of product
- Easy entry/exit of firms into the market 4 Government franchise: firm is set up as differentiation to maximize profits. Profits may
- No non-price competition the sole producer and distributor of a be negative, zero or positive in the short run.
product or service but is subject to
Determination of Profit Maximization government regulation. Rules for profit maximization:
Approaches: - The firm must select output for which MR =
1. TR-TC approach Characteristics: MC
TR > TC = Economic profit - Single firm selling the commodity - The firm should produce in the short - run if
TR = TC = Normal or Zero Profit/Break- - No close substitutes for the commodity price exceeds average cost
even - Price maker
TR < TC = Loss - Entry into the industry is difficult 2. Oligopoly
- No non-price competition Characteristics:
2. MR = MC approach - Few sellers
Rule for Profit Maximization: Types of monopoly - There is mutual interdependence among
The Most Profitable Output (MPO) – the 1. Regulated monopoly the few sellers
output where the value of MR = MC. - Subject to social regulation - Products sold maybe homogenous or
- Earns lower profit differentiated
- There is a rigid price o As a result, oligopolists face a 1. Market sharing cartel – gives each
- There maybe a price leader demand curve that has a kink at the member the exclusive right to operate in a
- There are some barriers to entry into the prevailing price and highly elastic for particular geographical area.
market price increases but much elastic for 2. Centralized cartel – a formal agreement
- There is non-price competition price cuts. among the oligopolistic producers of a
product to set the monopoly price, allocate
EXMAPLES: automobile industry and telecom output among its members, and determine
industry how profits are to be shared.

Types of Oligopoly:
1. Duopoly – only two sellers
GAME THEORY AND
2. Pure oligopoly – sell homogenous STRATEGIC BEHAVIOR
products
3. Differentiated oligopoly – sell Strategic Behavior - the Plan of Action or
differentiated products behavior of an oligopolist, after taking into
consideration all possible reactions of its
Sources of Oligopoly: Collusion – a secret agreement entered into by competitors as they compete for profits or
- Economies of scale firms who decide to act together. other advantages.
- Huge capital investments and specialized
inputs All firms in the industry agree to establish price Game Theory
- Few firms own a patent for the exclusive levels which are most profitable for the - Pioneered by the mathematician John von
right to produce a commodity or to use a industry as a whole rather than to set prices as Neuman and the economist Oskar
particular production process individual units. Morgenstern in 1944.
- Established firms may have a loyal - Concerned with the choice of the best or
following of customers based on product Advantages: optimal strategy in conflict situations.
quality and service. - Increased profits
- Few firms own and control the supply of - Decreased uncertainty EXAMPLE: Game theory can help a firm
raw materials required in production - Better opportunity to block entry of new determine the conditions under which lowering
- Government may give a franchise to only a firms its price would not trigger a ruinous price war,
few firms to operate in the market whether the firm should build excess capacity to
When collusive arrangement is openly discourage entry to the industry, and why
The Kinked Demand Curve Model accomplished through formal agreement, then cheating in a cartel usually leads to its collapse.
Introduced by Paul Sweezy in 1939 to explain there is said to be a CARTEL. - Shows how an oligopolistic firm makes
the price rigidity in oligopolistic models. strategic decisions to gain competitive
Cartel – a formal organization of firms in the advantage over a rival or how it can
- He postulated that if an oligopolist raise its industry which seeks to maximize profit minimize the potential harm from a
price. It would lose most of its customers through price and output regulation strategic move by a rival.
because other firms would not follow by
raising their prices. Decision making is entrusted to the central GAME THEORY MODEL includes players,
- An oligopolist could not increase its share in organization which is responsible to its strategies, and payoffs.
the market by lowering its price because members.
competitors would quickly match price 2 types of cartels
cuts.
Players - are the decision makers whose Non-zero game - gains or losses of one firm b. For a tit-for-tat strategy to be best, certain
behavior are trying to explain and predict/ does not come at the expense of or provide conditions must be met.
Strategies - the choices to change price, equal benefits to the other firm. c. It requires reasonably stable set of players
develop new products, make a new advertising EXMAPLE: d. There must be a small number of players
campaign, build new capacity, and all other - If increased advertising led to higher profits e. It is assumed that each firm can quickly
actions that affect the sales and profitability of of both firms and profit is used rather than detect cheating by other firms
the firm and its rivals market share as payoff – positive sum game f. Demand and cost condition must be
- If increased advertising raises costs more relatively stable
Payoff - the outcome or consequence of each than revenues and the profits of both firm g. Assume that the game is repeated
strategy. decline – negative sum -game indefinitely
- For each strategy adopted by a firm, there is
usually a number of strategies (reactions) 1. Dominant Strategy – the optimal choice of
available to a rival firm. the player
- The outcome or consequence of each
combination of strategies by the two firms. 2. Nash Equilibrium - the situation where
- Expressed in terms of the profits or losses each player chooses his or her optimal
of the firm as result of the firm’s strategies strategy, given the strategy chosen by other
and the rivals’ responses. player.
- The high advertising strategy for firm A and
Payoff matrix – the table giving the payoffs B is the Nash Equilibrium because, Sequential Games and Decision Trees
from all the strategies open to the firm and the giventhat Firm B choses its dominant Some strategic choice or games are sequential
rivals’ responses. strategy of advertising, the optimal strategy in nature in that the best strategy or move for
for Firm A is also to advertise. each player depends on the other player’s
Zero sum game - the gain of one player comes previous move.
at the expense and is exactly equal to the loss of 3. Prisoners Dilemma - a situation in which Sequential games can be shown by game or
the other player. each firm adopts its dominant strategy, but decision tree.
each could do better (i.e., earn large profits)
EXMAPLE: by cooperating. Decision tree - a diagram with nodes and
- If firm A increases its market share at the branches
expense of B by increasing its advertising 4. Price Competition and Prisoners’ a. Nodes – depict points at which decisions
expenditures (in the face of unchanged Dilemma - Prisoners’ dilemma can be used are made
advertising by firm B). to analyze price and non-price competition b. Branches – show the outcome of each
- If B also increased also its advertising in oligopolistic markets, as well as the decision in sequential games
expenditures, firm A might not gain any incentive to cheat in a cartel.
market share. The construction of decision trees begins with
- If firm A increased its price and firm B did Repeated games - involve many consecutive the earliest decision and moves forward in time
not match it, firm A might lose market to moves and countermoves by each player. The through a series of subsequent decision,
firm B. best strategy for each player is tit-for-tat.
- Thus, the gains of one player equal the At every point that a decision is made, the tree
losses of the other (total gains plus total Tit-for-Tat behaviors are summarized as branches out until all the possible outcomes of
losses sum to zero). follows: the game have been depicted.
a. Do to your opponent what he has just done
to you. The outcomes of the game are the payoff.
CONCENTRATION RATIOS d. With four equal-sized firms
H = 25² + 25² + 25² + 25² = 2500
PRICING PRACTICES
AND HERFINDAHL INDEX Pricing of Multiple Products
- The Herfindahl Index has become of great
Concentration Ratios - the degree by which an practical importance since 1982.
- It is also used as a basis for evaluating Pricing Products with Interrelated Demands
industry is dominated by a few large firms is - Consider the effect of the change in price of
measured by it. proposed mergers.
one of its products on the demand for the
The Architecture of the Ideal Firm other product.
Concentration Ratios - Demand interrelationships influence the
- Gives the percentage of the total industry pricing decisions of a multiple product thru
sales of the 4, 8, or 12 largest firms in the Firm Architecture - refers to the way the firm
is organized, operates, and responds to changes their effect on marginal revenue.
industry.
- 4-firm concentration ratio close to 100 – in the markets.
For a two-product firm (A and B) firm, the
clearly oligopolistic marginal revenue function of the firm is
- Higher than 50 or 60% – likely to be Characteristics of an Ideal Firm
oligopolistic - Specializes in its core competencies and
- The four-firm concentration ratio considers outsources all other activities
the market share of the four largest firms in - Learning organization
an industry. If this ratio exceeds 60%, it - Operates extremely efficient factories or Optimal pricing and output decisions on the part
suggests an oligopoly. plants of the firm require that total effect of the change
- Seamlessly combines the physical and the in price of the product on the firm be taken into
Herfindahl Index virtual consideration.
- Given by the sum of the squared values of - Real-time enterprise
the market shares of all firms in the Plant Capacity Utilization and Optimal
industry. Virtual Corporation – a temporary network of Output Pricing - as long as MR from the two
- The higher the Herfindahl Index, the greater independent companies (suppliers, customers, products exceeds MC, profits of the firm will
is the degree of concentration in the and even rivals) coming together, with each increase.
industry. contributing its core competence to quickly
take advantage of a fast-changing opportunity. Thus, instead of producing a single product
EXAMPLE: where MR = MC, the firm will introduce new
a. 1 firm in the industry, market share is - Best-of-everything organization products in the order of their profitability until
100% - The blueprint of the ideal firm the MR of the least profitable product produced
H = 100² = 10,000 equals MC.
Relationship Enterprises - networks of
b. 2 firms in the industry independent firms that form strategic alliances Price Discrimination - the charging of
1 firm – 90% share to build the capabilities and geographic different prices for different quantities of
1 firm – 10% share presence needed to be global leaders in the product, at different times, to different
H = 90² + 10² = 8200 field. customer groups, when these prices are not
- Based fundamentally on a complementarity justified by cost differences.
c. If each of the 2 firms has 50% share of the of capabilities and resources among the - Incentive: firm can increase its TR and
market partner firms profits for a given level of sales and total
H = 50² + 50² = 5000 - Create value by leveraging their costs.
complementarity
Examples of Price Discrimination: 1. Predatory dumping - the temporary sale Other Pricing Practices
- Power (electrical and gas) of a commodity at below cost or at a lower 1. Prestige Pricing – refers to deliberately
- Medical and legal profession price abroad in order to drive foreign setting higher prices to attract prestige-
- Entertainment companies producers out of business, after which oriented customers.
- Service industries prices are raised abroad to take advantage 2. Price Lining – the setting of a price target
of the newly acquired monopoly. by a firm and then developing a product
Three conditions to be met by a firm to 2. Sporadic dumping - the occasional sale of that would allow the firm to maximize total
practice price discrimination the commodity at below cost or at a lower profits at that price.
1. Firm must have control over the price of the price abroad than domestically in order to 3. Skimming – the setting of a high price
product. unload unforeseen and temporary surplus when a product is introduced and gradually
2. Price elasticity of demand for the product of a commodity without having to reduce lowering its price.
must differ for different quantities of the domestic prices. 4. Value Pricing – the selling of quality goods
product, at different times, or for different at much lower prices than previously.
customer groups. Transfer Pricing – the need to determine the 5. Price Matching – a pricing strategy in
3. The quantities of the product, when they price of an intermediate product sold by one which a firm advertises a price for its
are consumed, and the markets for the semi-autonomous division of a large-scale product or services and promises to match
product must be separable. enterprise and purchased by another semi- any lower price offered by a competitor.
autonomous division of the same enterprise. 6. Auction Pricing – the pricing strategy
3 types of price discrimination: where buyers and sellers make bids for the
1. First-degree price discrimination - Cost-Plus Pricing – also known as “mark-up goods on sale.
involves selling each unit of the product pricing” and “full-cost pricing.”
separately and charging the highest price
possible for each unit sold. Peak-Load Pricing, Two-Part Tariff, Tying,
PRICING STRATEGIES
2. Second-degree price discrimination - the and Bundling
charging of a uniform price per unit for a 1. Peak-Load Pricing – the charging of a Major Pricing Strategies
specific quantity or block of the product higher price for a good or service during 1. Customer Value-Based Pricing
sold to each customer, and a lower price per peak times than off-peak times. - Setting price based on buyers’ perceptions
unit for an additional batch of the product. 2. Two-Part Tariff – the pricing practice in of value rather than on the seller’s cost as
3. Third-degree price discrimination - the which consumers pay an initial fee for the the key to pricing
charging of different prices for the same right to purchase a product, as well as the - Begins with analyzing consumer needs
product in different markets until the usage fee or price for each unit of the - The marketer cannot design a product and
marginal revenue of the last unit of the product they purchase. marketing program and then set the price
product sold in each market equals the 3. Tying – the requirement that a consumer - Price is considered along the marketing
marginal cost of producing the product. who buys or leases a product also purchase variables before the marketing program is
another product needed in the use of the set
International price discrimination first. “Good value is not the same as low price”
(dumping) 4. Bundling – a common form of tying in
The charging of a lower price abroad than at which the firm requires customers buying 2. Good-Value Pricing
home for the same commodity because of the or leasing one of its products or services to - Offering the right combination of quality
greater price elasticity of demand in the foreign also buy or lease another product or service and good service at a fair price
market. when customers have different tastes, but - Involves introducing less expensive
the firm cannot price discriminate. versions of established brand name
Two forms of dumping: products
- Involves redesigning existing brands to Costs as a function of production experience Break-Even Analysis and Target Profit
offer more quality at a given price Learning curve – the drop in the average per Pricing
unit production cost that comes with Example:
EXMAPLE: McDonald’s, Armani Exchange, Car accumulated production experience Fixed cost 300,000
companies, Airline companies Variable cost 10
Price 20
3. Everyday Low-Pricing (EDLP) –
charging a constant everyday low price Break-even volume = Fixed cost / (Price −
with few or no temporary price Variable cost)
discounts = 300,000 / (20 − 10)
= 30,000
EXMAPLE: Walmart, Costco
2. Competition-Based Pricing
4. Value-Added Pricing - attaching value- - Setting price based on competitors’
added features and services to strategies, costs, prices, and market
differentiate a company’s offers and offerings.
1. Cost-Plus Pricing (or Markup Pricing) –
charging higher prices - Consumers will base their judgments of a
the simplest method – adding a standard
markup to the cost of the product. product’s value on the price that
EXMAPLE: Stag umbrella competitors charge for similar products
EXMAPLE: Costs and expected sales of a
5. Cost-Based Pricing - astrategy where “No matter what price you charge – high, low, or
toaster manufacturer
the selling price of a product or service in between – be certain to give customers
Variable Cost 10
is determined by adding a mark-up to superior value at that price.”
Fixed Costs 300,000
total cost of production
Expected Unit Sales 50,000
Other Internal and External Considerations
Types of Costs Affecting Price Decisions
Manufacturing cost per toaster:
Unit cost = Variable cost + (Fixed cost / Unit
Fixed Costs (FC) – costs that do not vary with Internal
sales)
production or sales level. Also known as 1. Overall marketing strategy, objectives,
= 10 + (300,000 / 50,000)
overhead. and mix
= 16
EXMAPLE: rental & interest payment 2. Organizational considerations
The manufacturer wants to earn a 20% markup
Variable Costs (VC) - vary directly with the External:
on sales.
level of production 1. Market and demand
Markup price = Unit cost / (1 - Desired return
EXMAPLE: labor cost & other inputs in o Pricing in different types of markets
on sales)
production o Price–demand relationship
= 16 / (1 - 2)
= 20 2. Environmental factors
Total Costs (TC) - the sum of the fixed and
variable costs for any given level of production New-Product Pricing Strategies
The manufacturer would charge dealers 20 per
FORMULA: TC = FC + VC 1. Market-Skimming Pricing
toaster and make a profit of 4 per unit.
- Setting a high price for a new product to
Costs at different levels of production skim maximum revenues layer by layer
- SRAC / LRAC
 from the segments willing to pay the high 6. Product-Bundle Pricing - combining Conditions to be met for effective segmented
price several products and offering the bundle at pricing:
- The company makes fewer but more a reduced price. - Market must be segmentable, and segments
profitable sales EXMAPLE: Fast food chains, must show different degrees of demand.
EXMAPLE: Apple – iPhone Telecommunication companies - Cost of segmenting and reaching the market
cannot exceed the extra revenue obtained
2. Market–Penetration Pricing - set a low Price Adjustment Strategies from the price difference.
price for a new product to attract a large 1. Discount and Allowance Pricing - Must be legal
number of buyers and a large market share a. Cash discount – price reduction to - Should reflect real differences in customers’
EXMAPLE: IKEA buyers who pay their bills promptly perceived value.
EXAMPLE: 2/10, net 30
Product-Mix Pricing Strategies 3. Psychological Pricing - pricing that
1. Product Line Pricing - setting the price b. Allowances – promotional money paid considers the psychology of prices, not
steps between various products in a by manufacturers to retailers in return for simply the economics; the price says
product line based on cost differences an agreement to feature the manufacturer’s something about the product
between products, customer evaluation of products in some way EXAMPLE: Perfume, lawyering services
different features, and competitors’ prices. EXAMPLE: Trade-in allowances –
EXMAPLE: P&G automobile industry a. Reference prices – prices that buyers
carry in their minds and refer to when
2. Optional-Product Pricing - the pricing of Promotional allowances – payments or price looking at a given product
optional or accessory products along with a reductions to reward dealers for participating EXAMPLE: Cereals
main product. in advertising and sales support programs
EXMAPLE: Purchase of a new PC 4. Promotional Pricing - temporarily pricing
2. Segmented Pricing - selling a product or products below the list price, and
3. Captive Product Pricing - setting a price service at two or more prices where the sometimes even below cost, to increase
for products that must be used along with a difference in prices is not based on short-run sales
main product. differences in costs EXAMPLE: Discounts, cash rebates, low-
EXMAPLE: P&G interest financing, longer warranties,
a. Customer segmented pricing – free maintenance
4. Optional-Product Pricing - the pricing of different customers pay different prices for
optional or accessory products along with a the same product or service Adverse effects:
main product. EXAMPLE: Museums and movie theaters - Deal-prone customers
EXMAPLE: Blades for a razor; games for a - Erodes a brand’s value in the eyes of
video game console b. Product form pricing – different customers
versions of the product are priced
5. By-Product Pricing - setting a price for by- differently 5. Geographical Pricing - setting prices for
products to make the main product price EXAMPLE: Bottled products customers located in different parts of the
more competitive. country or world
EXMAPLE: Turning trash into cash: Seattle’s c. Location-based pricing – charging
Woodland Park Zoo different prices for different locations even Strategies:
though the cost of offering each location is a. FOB–origin pricing – goods are placed free
the same on board a carrier; the customer pays the
EXAMPLE: Concert/theater tickets freight from the factory to the destination.
b. Uniform delivered pricing – company
charges the price plus freight to all customers,
MOCK EXAM - FINALS 23. Secret agreement among firms to act
together.
regardless of their location 24. Condition where demand elasticity differs
IDENTIFICATION across groups or quantities.
c. Zone pricing – the company sets up two or
1. The additional revenue from selling one more 25. Charging more during times of peak usage.
more zones. All customers within a zone pay the
unit of output. 26. Type of discrimination where one price is
same total price, the more distant the zone, the 2. Price discrimination charging different prices charged for each unit sold at max value.
higher the price. not based on cost differences.
d. Basing point pricing – the seller designates 27. Pricing strategy where firms combine several
3. Strategy in repeated games where a player products at a lower price.
some city as a basing point and charges all copies what the opponent did in the previous 28. Pricing behavior that reflects customer
customers the freight from that city to the round. perception and mental price anchors.
customer 4. Cartel with centralized decision-making. 29. Model that evaluates firm decisions based on
e. Freight absorption pricing – the seller 5. A situation where both firms can gain or lose strategies and payoffs.
absorbs all or part of the freight charges to get independently. 30. Outcome level where MR equals MC.
the desired business 6. Legal protection such as a patent that creates 31. A firm that sells a unique product with no
a monopoly. close substitute.
6. Dynamic Pricing - adjusting prices 7. The curve model that explains why prices in 32. The structure where only two sellers
continually to meet the characteristics and oligopoly don’t easily change. dominate the market.
needs of individual customers and 8. A firm that sets its own prices. 33. Market structure with few sellers and some
situations 9. Pricing model involving a fixed fee plus per- interdependence.
EXAMPLE: Online shopping prices use charge. 34. Cartel where each member has exclusive
10. The concept where a firm adds a markup to geographical rights.
7. International Pricing cost to determine price. 35. Price discrimination that applies different
Factors considered: 11. Game theory concept where players make prices in different markets.
- Economic conditions decisions in a sequence. 36. Condition required to apply price
12. Lines in a decision tree that show outcomes of discrimination.
- Competitive situations
choices. 37. Market structure characterized by many
- Laws and regulations
13. A temporary network of firms combining buyers and sellers of a homogenous product.
- Development of the wholesale and retailing strengths. 38. A strategy that gives the best outcome
system 14. Goods required to be purchased alongside the
EXAMPLE: Airline services & Unilever regardless of rival actions.
main product. 39. Points in a decision tree where decisions are
15. Organization that seamlessly integrates made.
physical and digital systems. 40. A concept that adds quality or service to
16. Market structure where many sellers offer differentiate and justify higher price.
slightly different products. 41. Cartel coordinating prices and output among
17. The competitive environment in which members.
buyers and sellers operate. 42. A firm that operates as a learning
18. Outcome or result from a chosen strategy in organization.
game theory. 43. Setting a high price initially and lowering it
19. Dominant strategy behavior in games. later.
20. Type of monopoly subject to social regulation. 44. The sum of squared market shares across all
21. Concept where market share is concentrated firms.
in only a few firms. 45. A strategy where a firm promises to meet
22. A table showing the results of all possible competitors’ lower prices.
strategic moves.
46. A strategy that targets customers attracted by 69. Price charged during off-peak versus peak 92. Dominant strategy guarantees optimal results
higher-status branding. demand times. regardless of rivals.
47. Theory used to evaluate decision-making in 70. The most profitable output level in any 93. Herfindahl Index is used to assess market
conflict situations. structure. concentration for mergers.
48. A firm that operates with core competencies 71. When a company sells internationally at 94. Price discrimination requires that different
and outsources the rest. lower prices to dominate the market. groups have the same elasticity.
49. Selling products together at a reduced rate 72. The revenue per unit of output. 95. Dumping is always illegal under trade laws.
when tastes differ but price discrimination 73. A group of independent firms acting together 96. Peak-load pricing charges higher prices
isn’t feasible. formally. during busy hours.
50. The practice of charging based on cost plus 74. A pricing method that simplifies customer 97. Psychological pricing focuses purely on
markup. decisions by aligning products to price production cost.
51. A kink in demand resulting from asymmetric targets. 98. Collusion is always illegal under any
firm responses. 75. A method for setting prices across multiple condition.
52. A type of firm relationship based on locations. 99. Price matching helps firms remain
complementarity and mutual value. 76. Price discrimination where prices reflect the competitive with others.
53. Monopoly type not subject to regulation. buyer’s group, time, or quantity. 100. Cost-based pricing includes adding a
54. Firms adjusting prices based on online 77. A condition where competitors match price markup to the cost.
demand conditions. cuts but not price increases. 101. Optional-product pricing includes
55. A method where optional accessories are 78. The outcome in games where one’s gain accessories sold with a product.
priced separately. equals another’s loss. 102. Zero-sum games benefit all players
56. The concept of strategic behavior among 79. Price setting based on competitors’ offerings. equally.
firms in oligopoly. 103. Cartels can be formal and openly
57. Market structure with identical products and TRUE OR FALSE coordinated.
no price control. 80. The kinked demand curve explains why 104. Nash equilibrium occurs when each firm
58. A product pricing method based on the prices in oligopoly are often stable. makes the best decision given others’
perceived value by customers. 81. Tit-for-tat involves doing the opposite of your strategies.
59. A tool showing all possible game payoffs. opponent’s last move.
60. A pricing method using auctions or bidding. 82. A product line pricing strategy offers one
61. Price discrimination using block pricing or single price for all products. ANSWER KEY - FINALS
tiered quantities. 83. Monopoly firms face no barriers to entry.
62. Sale of products abroad below local price to 84. Transfer pricing refers to pricing between IDENTIFICATION
dispose of surplus. unrelated companies. 1. Marginal Revenue (MR)
63. Situation where firms act but could benefit 85. Firms in perfect competition are price 2. Price Discrimination
from cooperation. makers. 3. Tit-for-Tat
64. Game strategy outcome where no firm can 86. In monopolistic competition, there are no 4. Centralized Cartel
improve if others don’t change. non-price competitions. 5. Non-Zero-Sum Game
65. A pricing method that includes charging for 87. Cartels are always informal and secret. 6. Control over raw materials
base access and additional use. 88. Bundling is commonly used in the 7. Herfindahl Index
66. Product-pricing method based on fixed telecommunications industry. 8. Monopolistic Competition
features and cost differences. 89. Segmented pricing must be based on cost 9. Tit-for-Tat
67. Game theory component representing differences. 10. Cost-Plus Pricing
players’ decisions. 90. Skimming involves setting low prices initially. 11. Sequential Games
68. The outcome level where total revenue equals 91. Prestige pricing attracts status-conscious 12. Branches
total cost. consumers. 13. Virtual Corporation
14. Tying
15. Real-Time Enterprise 60. Auction Pricing 91. True – Prestige pricing targets status-
16. Monopolistic Competition 61. Second-Degree Price Discrimination conscious consumers.
17. Market Structure 62. Sporadic Dumping 92. True – Dominant strategy guarantees
18. Payoff 63. Prisoners’ Dilemma optimal results regardless of rivals.
19. Dominant Strategy 64. Nash Equilibrium 93. True – Herfindahl Index is used to assess
20. Regulated Monopoly 65. Two-Part Tariff market concentration for mergers.
21. Market Concentration 66. Product Line Pricing 94. False – Price discrimination requires
22. Payoff Matrix 67. Strategies different elasticity, not the same.
23. Collusion 68. Break-even 95. False – Dumping isn’t always illegal;
24. Elasticity Difference 69. Peak-Load Pricing depends on context.
25. Peak-Load Pricing 70. MR = MC 96. True – Peak-load pricing charges higher
26. First-Degree Price Discrimination 71. Predatory Dumping prices during busy hours.
27. Bundling 72. Average Revenue (AR) 97. False – Psychological pricing is about
28. Psychological Pricing 73. Cartel customer perception, not cost.
29. Game Theory 74. Price Lining 98. False – Collusion may be legal in some
30. MR = MC 75. Geographical Pricing regulated forms (e.g., government-
31. Monopoly 76. Third-Degree Price Discrimination approved cartels).
32. Duopoly 77. Kinked Demand Behavior 99. True – Price matching helps firms stay
33. Oligopoly 78. Zero-Sum Game competitive.
34. Market Sharing Cartel 79. Competition-Based Pricing 100. True – Cost-based pricing
35. Third-Degree Price Discrimination includes a markup over production cost.
36. Control over price TRUE OR FALSE 101. True – Optional-product pricing
37. Perfect Competition 80. True – The kinked demand curve includes accessories.
38. Dominant Strategy explains why prices in oligopoly are often 102. False – Zero-sum games do not
39. Nodes stable. benefit all players equally.
40. Value-Added Pricing 81. False – Tit-for-tat involves copying, not 103. True – Cartels can be formal with
41. Centralized Cartel doing the opposite. structured agreements.
42. Learning Organization 82. False – Product line pricing involves 104. True – Nash equilibrium means
43. Skimming different prices based on features. no firm has an incentive to deviate given
44. Herfindahl Index 83. False – Monopoly firms have significant others’ decisions.
45. Price Matching barriers to entry.
46. Prestige Pricing 84. False – Transfer pricing occurs within the
47. Game Theory same company divisions.
48. Ideal Firm 85. False – Firms in perfect competition are
49. Bundling price takers.
50. Cost-Plus Pricing 86. False – Monopolistic competition
51. Kinked Demand Curve includes non-price competition.
52. Relationship Enterprises 87. False – Cartels can also be formal (e.g.,
53. Unregulated Monopoly centralized cartel).
54. Dynamic Pricing 88. True – Bundling is commonly used in
55. Optional-Product Pricing telecom.
56. Strategic Behavior 89. False – Segmented pricing is not based on
57. Perfect Competition cost differences.
58. Customer Value-Based Pricing 90. False – Skimming sets high prices at
59. Payoff Matrix product launch.