[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

9. Explain why frequent-flier programs (in which airlines
give credits, convertible into travel awards for each
mile traveled) might reduce competition among airlines.
Put yourself in the role of consultant to one of the airlines
in the days before any airline had such programs.
Would you have recommended that the airline adopt
the program? What would you have assumed about
the responses of other airlines? Would this have been
important to your assessment?
10. At various times, Nintendo has been accused of trying to
stifle its competitors. Among the alleged practices have
been (a) not allowing those who produce games for
Nintendo to produce games for others; and (b) discouraging
stores that sell Nintendo from selling competing
games—for instance, by not fulfilling their orders as
quickly, especially in periods of shortages. Explain why
these practices might increase Nintendo’s profits.
11. Consider two oligopolists, with each choosing between a
“high” and a “low” level of production. Given their
choices of how much to produce, their profits will be:
Firm A
High production
Low production
High A gets $2 million profit A gets $1 million profit
production B gets $2 million profit B gets $5 million profit
Firm B
High production
Low production
Low A gets $5 million profit A gets $4 million profit
production B gets $1 million profit B gets $4 million profit
Explain how firm B will reason that it makes sense to
produce the high amount, regardless of what firm A
chooses. Then explain how firm A will reason that it
makes sense to produce the high amount, regardless of
what firm B chooses. How might collusion assist the two
firms in this case?
REVIEW AND PRACTICE ∂ 287