Questions
Question 1. In microeconomics basic theory, many economists believe that “perfect competition” is preferable to “monopoly” or “oligopoly”. At the same time, SCP theory, which is founded on microeconomics basic theory, suggests that firms should be in industries close to monopoly or oligopoly rather than in industries close to perfect competition.
(1) Explain why microeconomics basic theory and SCP theory have such divergent views.
(2) In perfect competition, firms cannot control market price and thus market price tends to be lower than that of monopoly and oligopoly. In some occasions, however, firms in oligopoly may decrease market price substantially. Explain why this could be the case using game theory. Further, identify a real-world example of “perfect competition” and a real-world example of “price-cut-competition in oligopoly”, and compare their mechanism.

Question 2. In game theory, a firm under “(non-corporative) simultaneous game” may make a strategic commitment so as to change the situation from simultaneous game to “sequential game” in which it plays a role of leader. For attaining this objective, the firm’s strategic commitment must be “credible”.
(1) Identify a real-world business example of sequential game in which a firm plays a role of leader by making strategic commitment.
(2) Discuss why the identified strategic commitment in your example is credible.

Question 3. Agency theory suggests that interest divergence and information asymmetry between players may incur “moral hazard” problem.
(1) Identify a real-world business example to which “moral hazard” problem is applicable. Discuss why it could be the case. (You cannot use an example discussed in the class.)
(2) Based on your identified example in (1), discuss how changing “incentive structure” can mitigate the moral hazard problem.

Questions Question 1. In microeconomics basic theory, many economi...