When decision rights are decentralized, typically
a. decisions are being moved to those with less of the relevant information
b. decisions are being moved to those with stronger incentives to make good decisions
c. decisions are being moved to those with more of the relevant information
d. decisions are being moved from those with weaker incentives to make good decisions
c
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Consider the following entry game: Here, firm B is an existing firm in the market, and firm A is a potential entrant. Firm A must decide whether to enter the market (play "enter") or stay out of the market (play "not enter"). If firm A decides to enter the market, firm B must decide whether to engage in a price war (play "hard"), or not (play "soft"). By playing "hard," firm B ensures that firm A makes a loss of $2 million, but firm B only makes $2 million in profits. On the other hand, if firm B plays "soft," the new entrant takes half of the market, and each firm earns profits of $4 million. If firm A stays out, it earns zero while firm B earns $8 million. Which of the following are perfect equilibrium strategies?
A. (enter, soft) B. (not enter, hard) C. (enter, hard) D. (not enter, soft)
Figure 9.6In Figure 9.6 if price is P2, then the industry will:
A. expand. B. contract. C. stay the same size. D. cease to exist.