MARKET STRUCTURES

Case Assignment

Explain the Prisoner’s Dilemma game, the notion of dominant strategy, and the concept of Nash equilibrium and cooperation. Using these concepts, then, analyze the following duopoly game.

Philip Morris and R.J. Reynolds spend huge sums of money each year to advertise their tobacco products in an attempt to steal customers from each other. Suppose each year Philip Morris and R.J. Reynolds have to decide whether or not they want to spend money on advertising. If neither firm advertises, each will earn a profit of $2 million. If they both advertise, each will earn a profit of $1.5 million. If one firm advertises and the other does not, the firm that advertises will earn a profit of $2.8 million and the other firm will earn $1 million.

If the two companies decide to collude to maximize profits, what will each company do? What profit will each company earn?

What is the dominant strategy for each company, and what profit will each company earn if they follow those strategies?

Is the solution you found in the first question a Nash equilibrium?

Is the solution you found in the second question a Nash equilibrium?

Assignment Expectations/Requirement:

In this Case Assignment, you are expected to:

Describe the purpose of the paper and provide a conclusion.

Present information in a professional manner.

Answer the Case Assignment questions clearly and provide necessary details.

Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.

Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references with credible sources (3-5 sources) [http://owl.english.purdue.edu/owl/resource/560/01/].

Type and double-space the paper, min 4-5 pages.

Please use Excel, chart, or graphs to show supporting computations in an appendix, present economic information in tables, and use the data to answer follow-up questions.

Reading Required:

Links to Competition

Stengel, D. (2012). Chapter 6: Market equilibrium and the perfect competition model. Managerial Economics Principles. Flat World Education http://saylordotorg.github.io/text_principles-of-m…

Optional Reading

Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentation available at http://highered.mheducation.com/sites/0073402818/s…

Welker, J. (2012, Feb. 19). From Short-run to Long-run in Perfect Competition [Video File]. Retrieved from

Links to Monopoly

Required Reading

Beveridge, T. M. (2013). Chapter 7: Monopoly A Primer on Microeconomics. Business Expert Press, New York, NY. [SEE ATTACHED BLOW]

Optional Reading

Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentation available at http://highered.mheducation.com/sites/0073402818/s…

Links to Oligopoly

Beveridge, T. M. (2013). Chapter 8: Between perfect competition and oligopoly. A Primer on Microeconomics. Business Expert Press, New York, NY[SEE ATTACHED BLOW]

Optional Reading

mjmfoodie. (2009, April 1). Episode 25: Market Structures [Video File]. Retrieved from

Links to Game Theory, the Prisoners Dilemma, and Strategic Decision Making

Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentation available at http://highered.mheducation.com/sites/0073402818/s…

Links to Monopolistic Competition

mjmfoodie. (2011, July 8). Episode 29 Monopolistic Competition [Video File]. Retrieved from

Beveridge, T. M. (2013). Chapter 8: Between perfect competition and oligopoly. A Primer on Microeconomics. Business Expert Press, New York, NY. [SEE ATTACHED BLOW]

Links to Government Regulation of Monopoly

Thomas, C.R., and Maurice, S.C., Managerial Economics, McGraw Hill (2008) Power Point Presentation available at: http://highered.mheducation.com/sites/0073402818/s…

Optional Reading

Consumer Protection: Government v. Market Regulation (von Mises Institute). A discussion between Peter G. Klein and Robert P. Murphy available at: