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slides10 - Game Theory Steven Allen ECG 507 Fall 2005 1...

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Game Theory Steven Allen ECG 507 Fall 2005
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1. Oligopoly Management Challenges Strategic actions Rival behavior
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2. Oligopoly Equilibrium in an Oligopolistic Market In perfect competition and monopoly the  producers did not have to consider a rival’s  response when choosing output and price. In oligopoly the producers must consider the  response of competitors when choosing  output and price.
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3. Oligopoly Equilibrium in an Oligopolistic Market Defining Equilibrium Firms doing the best they can and have no  incentive to change their output or price All firms assume competitors are taking rival  decisions into account. Nash Equilibrium Each firm is doing the best it can given what its  competitors are doing.
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4. Cartels Characteristics 1)  Explicit agreements to set output and  price 2) May not include all firms 3)  Most often international
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5. Cartels Conditions for success Potential of monopoly power--inelastic demand Ability to prevent cheating
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6. Cartels OPEC Observations TD and D OPEC  is inelastic Non-OPEC supply is inelastic
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7. Payoff Matrix for Cover Game Time Harry Potter Alito Harry Potter Alito Newsweek
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8. Payoff Matrix
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