DAY 1 PP Introduction to Oligopoly.ppt

DAY 1 PP Introduction to Oligopoly.ppt - • Draw a...

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Unformatted text preview: • Draw a correctly-labeled graph for both a perfectly-competitive firm and a monopolist operating at longrun equilibrium. • Indicate the equilibrium price and quantity • Form into teams of 4 • Earn the most money to win • Play either an “X” or “O” card • Receive payoff based on decision • DO NOT talk with other groups Chapter 15: Oligopoly (pages 388-395) • Pepsi vs. Coke • OPEC • Wireless phone providers • TV services • Airlines • Computer operating systems • Interdependent –Decisions by one firm impact others –Success dependent on others • Duopolies (in simplest form) –Consists of 2 firms in a market –Have significant incentives to cheat • Firms have incentive to collude • Strongest form of collusion is a cartel –Formal agreement to collude –Illegal in the U.S. • May result in non-cooperative behavior (cheating) • 2 stations in town • Each has 50% of the market • MC = $1/gallon • Herfindahl-Hirschman Index (HHI) • Used to define the market structure HHI < 1,000 Perfectly competitive –HHI 1,001 < HHI < 1,500 Somewhat –1,001 HHI > 1500 Oligopoly –HHI Industry HHI Largest Firms Market Structure PC operating systems 9,182 Microsoft, Linux Oligopoly Wide-body aircraft 5,098 Airbus, Boeing Oligopoly Automobiles 1,432 GM, Ford, Toyota, Honda Moderately competitive Retail grocers 321 Wal-Mart, Safeway, Competitive Kroger, Albertsons, Wegmans, Costco • Quantity competition –When output is fixed –Firms “divvy” up market –Limited opportunity to cheat • Price competition –Firms try to “undercut” competition –Leads to outcome where P=MC ...
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