3 1. Describe the bidding process by which the electricity generation sector provides electricity to pooling and balancing authorities. Additionally, show this process by building an electricity supply curve. a. What antitrust and regulation concerns are present at the wholesale stage of the electricity market? b. Describe a market design that reduces market manipulation in wholesale electricity markets. Show that the Nash equilibrium under this market design will result in generators bidding their true marginal cost of production. c. Describe a vertically integrated industry as it pertains to the electricity sector. d. Describe non-linear (two part) pricing as it pertains to retail electricity sales. What is the purpose of this pricing system?

3. We consider the following situation between 2 firms. Firm A (the "acquirer") would like to take over firm T (the "target"). It does not know firm I's value; it believes that this value, when firm T is controlled by its own management, is at least $0 and at most $100, and assigns equal probability to each of the dollar values in this range (we assume that the value is distributed uniformly on this interval). Firm T will be worth 50% more under firm A's management than it is under its own management. Suppose that firm A bids p to take over firm 7; and firm T is worth x (under its own management). Then if T accepts A's offer, A's payoff is 2x-p and T's payoff is p; if T rejects A's offer, A's payoff is 0 and T's payoff is x. (a) Formalize this situation as a Bayesian Game (b) Find the Bayesian Nash Equilibria of this game.

3. Firm A and Firm B are two firms in an industry. Firm A and Firm B are planning to merge. (a) Firm A and Firm B are Bertrand duopolists with identical and constant marginal costs. Post-merger marginal cost is lower than pre-merger. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses as well as cost-savings. (b) Firm A and Firm B are Cournot duopolists with identical marginal costs. Post- merger marginal cost is the same as pre-merger. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses. (c) Firm A and Firm B are Stackelberg competitors with identical marginal costs. Post-merger marginal cost is the same as pre-merger. Firm A is the Stackelberg leader. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses.…

8)Consider a market in which 5 companies operate, whose marginal and average costs are equal to c. The demand function is given by P(Q)= 1-Q, where P is the price and Q indicates the total quantity. Assume that companies compete with Cournot in choosing production levels. Assume that the game is repeated an infinite number of periods, that companies adopt trigger strategies and that the punishment is represented by Nash Reversion. 1)What is the value of the discount factor that allows companies to sustain tacit collusion in a balanced situation? 2) Assume now that companies are able to discover the defection of a rival company with K periods of delay. What do you think the effect on the sustainability of collusion can be? 3) Do you think that in this market collusion would be more easily sustainable if the companies compete with Bertrand? 4) If in a price-competitive market (Bertrand) N symmetrical companies operate, what would be the critical value of the discount factor that would…

1. Smart and Ferrari are both car firms. How do you think these firms differ in the way they go about conducting their business or are they actually very similar in lots of ways? 2. How might the pricing policies of Smart and Ferrari differ? 3. What sort of market structure do Smart and Ferrari operate in? How might these market structures affect the behaviour of the respective firms? 4. Explain the relevance of average, marginal and total costs to firms such as Ferrari and Smart. 5. Which do you think is more likely to benefit from economies of scale - Ferrari or Smart? Explain.

1. The table below shows the percentage of sales held by the four largest firms in an industry. Company A B C D Market share (percent of sales) 12 10 5 3 a) Calculate this industry's four-firm concentration ratio. b) Is this industry competitive? why? c) What market type does it most likely represent?

A. Does either firm have a dominant strategy? B.

6. Consider a duopoly in which inverse demand is given by P= 100-Q, where Pis the price and Q is aggregate output. The marginal cost of each firm is initially equal to 55 and there are no fixed costs. The firms compete by simultaneously setting quantities. (a) What is the equilibrium quantity of each firm, the equilibrium price and the profit of each firm? Now assume that one of the firms, firm 1, develops a new technology that reduces its own marginal cost to 25. (b) If firm 1 keeps this innovation for itself (so that the marginal cost of firm 2 is still 55), what will be the new equilibrium levels of output, price and profits of the two firms? What is the consumer surplus in the market? Do consumers benefit from the innovation?