CEA Market Structures and Competition 5

Question 1

Game theory's Nash equilibrium in an oligopoly is defined as a situation where:

Accepted Answer

Each firm's strategy is a best response to the strategies of all other firms

Answer

A Nash equilibrium occurs when no firm can improve its payoff by unilaterally changing its strategy, given the strategies chosen by all rivals.

Question 2

Which of the following best illustrates tying as an anticompetitive practice?

Accepted Answer

A seller requires buyers of its dominant product to also purchase a separate tied product

Answer

Tying forces buyers of a primary (tying) good to also purchase a secondary (tied) good, potentially leveraging market power from one market into another.

Question 3

Network externalities contribute to monopoly power by:

Accepted Answer

Increasing the value of a product as more users adopt it, locking consumers into one platform

Answer

Positive network externalities create a self-reinforcing cycle where the dominant platform becomes more valuable as adoption grows, raising switching costs for consumers.

Question 4

The merger of two firms in the same industry (horizontal merger) is most likely to raise antitrust concern when:

Accepted Answer

The post-merger HHI exceeds 2,500 and increases by more than 200 points

Answer

U.S. DOJ/FTC guidelines flag horizontal mergers as presumptively anticompetitive when the resulting HHI exceeds 2,500 with a delta above 200 points.

Question 5

Bundling as a pricing strategy is most profitable for a firm when:

Accepted Answer

Consumer valuations for the two goods are negatively correlated

Answer

Negative correlation in valuations means that consumers who highly value one good value the other less, making a bundle extract more total surplus than separate pricing.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Market Structures and Competition 5