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singleshot_Presentation - Announcements Short Term Price...

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1 1 Short Term Price Setting 2 Cornell University Announcements PS 1 session with Qinwen, 7:00 tonight, here in WN 201 PS 2 posted this weekend Decide CSG firms by Tuesday: need firm name (be creative!), 3-letter abbreviation of firm name, name and email of members 3 Cornell University Today’s Agenda Introduction to oligopolistic competition Game theory primer Bertrand competition Cournot competition 4 Cornell University Pure monopoly: produce until MC=MR Perfect competition: produce until MC=p, take price from market Oligopoly: not so clear…..depends on what rivals do Short Term Price Setting
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2 5 Cornell University Game Theory Primer Formal model of strategic behavior Economics uses GT to simulate competition in oligopolistic industries Useful when important to: See into the future : Decisions taken today may have an impact on both my own and my rivals’ future decisions. See through your competitors’ eyes : Outcomes depend not only on your decisions but also on your rivals’ decisions. 6 Cornell University Example: Oil production by Russia and OPEC Russia’s oil output surged in 2001 by 500,000 barrels a day, and was expected to rise an additional 350,000 barrels in 2002. OPEC production meanwhile had dropped by about 3.5 million barrels a day, and OPEC was worried about losing market share to Russia. OPEC wanted Russia to join other non-OPEC oil producing countries, like Norway and Mexico, that agree to scale back exports to keep prices above $20/barrel. OPEC threatened to expand production if Russia didn’t hold production steady.
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