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Ebook Managerial economics and business strategy: Part 2

(BQ) Part 2 book "Managerial economics and business strategy" has contents: Managing in competitive, monopolistic, and monopolistically competitive markets; basic oligopoly models; the economics of information; advanced topics in business strategy; pricing strategies for firms with market power,.and other contents. | CHAPTER NINE bay23224_ch09_325-363.qxd 12/28/12 8:13 AM Confirming Pages Page 325 Basic Oligopoly Models HEADLINE Learning Objectives After completing this chapter, you will be able to: Crude Oil Prices Fall, but Consumers in Some Areas See No Relief at the Pump Thanks to a recent decline in crude oil prices, consumers in most locations recently enjoyed lower gasoline prices. In a few isolated areas, however, consumers cried foul because gasoline retailers did not pass on the price reductions to those who pay at the pump. Consumer groups argued that this corroborated their claim that gasoline retailers in these areas were colluding in order to earn monopoly profits. For obvious reasons, the gasoline retailers involved denied the allegations. Based on the evidence, do you think that gasoline stations in these areas were colluding in order to earn monopoly profits? Explain. LO1 Explain how beliefs and strategic interaction shape optimal decisions in oligopoly environments. LO2 Identify the conditions under which a firm operates in a Sweezy, Cournot, Stackelberg, or Bertrand oligopoly, and the ramifications of each type of oligopoly for optimal pricing decisions, output decisions, and firm profits. LO3 Apply reaction (or best-response) functions to identify optimal decisions and likely competitor responses in oligopoly settings. LO4 Identify the conditions for a contestable market, and explain the ramifications for market power and the sustainability of long-run profits. 325 bay23224_ch09_325-363.qxd 326 12/28/12 8:13 AM Page 326 Confirming Pages Managerial Economics and Business Strategy INTRODUCTION Up until now, our analysis of markets has not considered the impact of strategic behavior on managerial decision making. At one extreme, we examined profit maximization in perfectly competitive and monopolistically competitive markets. In these types of markets, so many firms are competing with one another that no individual firm has any effect on .