Chapter 27 Notes

Chapter 27 Notes - Called "Price Leadership" or...

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Chapter 27 – Oligopoly Oligopoly : market structure characterized by a few firms that recognize their strategic interdependence. Middle ground between monopoly and perfect competition. Duopoly : special case of oligopoly with 2 firms competing strategically with each other in the market(s) for the good(s) they both produce. Timing Simultaneous Dynamic Choice Variable Quantities Cournot Stackelberg in Q Prices Bertrand Stackelberg in P Dynamic Quantities : Firm A is the leader and firm B is the follower. In period 1, firm A chooses its quantity and in period 2, firm B observes firm A's choice and then chooses its own quantity. Called "Quantity Leadership" or "Stackelberg in Quantities." Who has more power in this setting? Dynamic Prices : Firm A is the leader and firm B is the follower. In period 1, firm A chooses its price and in period 2, firm B observes firm A's choice and then chooses its own price.
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Unformatted text preview: Called "Price Leadership" or "Stackelberg in Prices." What will be the feature of an equilibrium set of prices in this setting? Simultaneous Quantities : Firm A and firm B set their quantities at the same time given their beliefs about what the other firm will do. Called Cournot competition. What will be the feature of an equilibrium in this setting? Simultaneous Prices : Firm A and firm B set their prices at the same time given their beliefs about what the other firm will do. Called Bertrand competition. What will be the feature of an equilibrium in this setting? Collusion : a situation where firms jointly determine their prices or quantities to maximize joint profits. When firms get together and attempt to set prices and outputs so as to maximize total industry profits, they are known as a cartel . OPEC....
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This note was uploaded on 04/28/2008 for the course ECON 306 taught by Professor Cramton during the Fall '06 term at Maryland.

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