Economics Qn 1.

ECONOMICS 5

Economics

Qn1.

Ahorizontal merger is a term that is used in economic to denote thephenomenon where two companies or firms operating in the same market,selling the same products or services combine under a solitaryownership (Sexton, 2015). It occurs when one company combinesoperations with another firm in the same industry. It is a businessevent that is common in markets with fewer companies, as firms seekfor new ways of increasing market share. One of the classicalexamples of a horizontal merger is when KAYAK raised $196MMto buy SideStepwhich was its main competitor.

Qn2

Apositive sum game denotes to the results of a decision, program,agreement or policy that involves at least one agent. It occurs whenno party contributing to outcome wins at the expense of another party(Antoniou &amp Pitsillides, 2012).An example of positive sum game may occur in the context of thediscussion between the workforce and the employer in an oligopoly,where firms make out their common interdependence and opting tocooperate. The joint venture agreed between Vodafone and O2 to createand exchange new network sites, in an excellent example of positivesum game. Both firms will benefit for sharing equipment and otherimportant facilities.

Qn3.

Prisoner’sdilemma is a context in the game theory, which offers a framework forunderstanding how to create a sense of balance between competitionand cooperation. Prisoner’s dilemma is a very helpful instrumentfor strategic decision making (Antoniou &amp Pitsillides, 2012). Itshows that when both individuals in a party chase their wonself-interest, the result is usually worse that if the two partiesopted to cooperate. An excellent example of prisoner`s dilemma is thecase of Pepsi Co. and Coca-Cola Company. One firm (Coca-cola) may optto lower prices in order to increase market share, and this isfollowed the reduction of prices by Pepsi. If both companiescooperate and set a specific price for commodities, they would reapmore benefits than engage in price wars.

Qn.4

Priceleadership is an action taken by one company, considered as theleader in the industry to establish prices for the whole industry(Ono, 2009). It is a type of tacit collusion that that firms in anoligopolistic market employ to attain monopoly powers. In this caseif the leader increases the price, all the other firms follow suit. Aprice war is a market situation, normally two firms with asignificant market share try to take over each other’s market shareand competitive edge by lowering prices (Ono, 2009).

Qn.5

Non-exclusionis one of the main feature of public goods. This means that from themoment that a given commodity is produced, it automatically becomesaccessible to all. The second feature of public goods is that theyhave non-rivalrous consumption (Robert, 2012). This means that theconsumption of one individual does not interfere or restrict theconsumption of another person. This means that the marginal cost ofproviding a product to n extra individual is zero (Robert, 2012).

Qn6.

Non-cooperativegames is where there is the focus to the strategies of individualplayers, and making predictions on what the players will select,while in cooperative game is where there is a focus to thecoalitions which may arise after players join hands. The combinationof moves (actions) offer a net loss (negative sum) or a gain(positive sum) to the two parties involved (Antoniou&amp Pitsillides, 2012).

Qn.7

Monopolyis a market structure where one firm is the sole provider of aparticular product or service, and there exist no close alternativefor the product. A Monopolistic competition is a market structurewhere there are many businesses enterprise providing different andunique products, but competing for the same customers (Sexton, 2015).Example of monopoly is the Google Inc and monopolistic is McDonaldand Burger King among others.

Qn.8

Monopoliesare usually formed as a result of legal barrier. For example, patentlaw gives the creator or discoverer the exclusive right to create andsell a given product for a certain period (Sexton, 2015). The mergerof two firms can also create a monopoly, especially in anoligopolistic market. Licensing restriction usually limit individualspermitted to offer products or service in a certain geographicallocation. Ownership of natural resources or where economies of scaleexist can also be a source of monopoly powers (Sexton, 2015).

References

Antoniou,J., and Pitsillides, A. (2012). GameTheory in Communication Networks: Cooperative Resolution ofInteractive Networking Scenarios.Auerbach Publications

Ono,Y.. (2009). Price Leadership: A Theoretical Analysis. Economica,49(193), 11–20. http://doi.org/10.2307/2553520

RobertJ. S. (2012). PublicGoods.WinthropUniversity, Retrieved from:http://faculty.winthrop.edu/stonebrakerr/book/public_goods.htm

Sexton,R. (2015). ExploringEconomics.Boston, Cengage Learning.