Question

3. Problems and Applications Q3 This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they buy. If sellers who are oligopolists try to increase the price of goods they sell, the goal of buyers who are oligopolists is to try to decrease the prices of goods they buy. Major league baseball team owners have an oligopoly in the market for baseball players. The owners' goal is to keep players' salaries . True or False: This goal is difficult to achieve because teams can attract better players with higher salaries. True False Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose. True or False: The owners felt the need for a salary cap to dissolve collusive behavior over salaries. True False

Answer 1

Answer:

Oligopolistic Companies:

a) The owners' goal is to keep players' salaries capped.   TRUE

b) Goal is difficult to achieve: TRUE

c) 1994 Baseball players' strike: TRUE

d) Owners needed salary cap to dissolve collusive behavior over salaries: TRUE.

Explanation:

a) According to the Economist, Oligopoly is "a market situation in which each of a few producers affects but does not control the market.  Each producer must consider the effect of a price change on the actions of the other producers."  There is little competition among the players as each tries to control the market with price cuts and quantity reductions.  For example, a cut in price by one may lead to an equal reduction by the others, with the result that each firm will retain approximately the same share of the market as before but at a lowered profit level.

b) According to wikipedia.com, "The 1994–95 Major League Baseball strike was the eighth work stoppage in baseball history, as well as the fourth in-season work stoppage in 22 years.  Due to the strike, both the 1994 and 1995 seasons were not played to a complete 162 games; the strike was called after most teams had played at least 113 games in 1994."  The strike ended the next April, after 232 days, when the players had successfully resisted the salary cap.