Which of the following hypothetical markets would be best modeled as a Stackelberg oligopoly? A town containing several restaurants, each serving a different type of cuisine. A town containing many independent coffee shops with very similar menus. A town containing several banks offering identical services, although one bank has been open in this town far longer than the others. An industry containing several factories capable of producing exactly the same product and that bid for manufacturing contracts. A county containing several farms that grow the same crops, which are all sold at the same time at the end of harvest.
Which of the following hypothetical markets would be best modeled as a Stackelberg oligopoly? A town containing several restaurants, each serving a different type of cuisine. A town containing many independent coffee shops with very similar menus. A town containing several banks offering identical services, although one bank has been open in this town far longer than the others. An industry containing several factories capable of producing exactly the same product and that bid for manufacturing contracts. A county containing several farms that grow the same crops, which are all sold at the same time at the end of harvest.
Chapter1: Making Economics Decisions
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Transcribed Image Text:**Question:**
Which of the following hypothetical markets would be best modeled as a Stackelberg oligopoly?
**Options:**
1. A town containing several restaurants, each serving a different type of cuisine.
2. A town containing many independent coffee shops with very similar menus.
3. A town containing several banks offering identical services, although one bank has been open in this town far longer than the others.
4. An industry containing several factories capable of producing exactly the same product and that bid for manufacturing contracts.
5. A county containing several farms that grow the same crops, which are all sold at the same time at the end of harvest.
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**Explanation:**
The given question is examining the application of Stackelberg oligopoly models to various hypothetical market scenarios. Here’s a breakdown of the presented options:
1. **Option 1**: This scenario involves differentiation in the type of cuisine offered by each restaurant, which means product differentiation is significant, and a Stackelberg model is less applicable here.
2. **Option 2**: This case represents a market with many independent coffee shops offering very similar menus. Though there is product similarity, the presence of many independent entities makes it less ideal for a Stackelberg oligopoly which typically involves fewer dominant players.
3. **Option 3**: In this scenario, several banks offer identical services, but one bank has been established longer than the others. This situation is suitable for a Stackelberg model because it features one leader (the established bank) and several followers (the newer banks). The leader's early entry and established presence give it a strategic advantage akin to the Stackelberg leader.
4. **Option 4**: This sector involves factories with identical products competing for contracts. However, without specified leaders and followers in the bidding process, this scenario does not directly correlate with the Stackelberg leadership framework.
5. **Option 5**: Agriculture with identical crops being sold simultaneously at harvest time indicates a competitive market rather than an oligopolistic one with clear market leaders and followers.
**Correct Answer: Option 3**: A town containing several banks offering identical services, although one bank has been open in this town far longer than the others.
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