Lecture_23_Oligopoly_and_Mono_Comp

Lecture_23_Oligopoly_and_Mono_Comp - Lecture 23: Oligopoly...

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Lecture 23: Oligopoly and Monopolistic Competition c 2008 Je/rey A. Miron Outline 1. Introduction 2. Oligopoly: Choosing a Strategy 3. Quantity Leadership 4. Price Leadership 5. Simultaneous Quantity Setting 6. Simultaneous Price Setting 7. Collusion 8. Punishment Strategies 9. Monopolistic Competition and Product Di/erentiation 1 Introduction So far we have examined two distinct market structures: pure competition and markets, but even more because they are useful theoretical benchmarks. Most markets, however, lie between the two extremes of pure competition and pure monopoly, so we now examine models that apply in those settings. One alternative ±between²pure competition and pure monopoly is monopolistic competition, which we discuss at the end of this lecture. The other alternative is oligopoly, which means a market with a ±small²number 1
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In oligopolistic settings, it turns out that strategic considerations are critical. and the equilibrium outcome. Under these conditions, it is necessary to consider a range of di/erent models, The set of models provides a guide to possible behavior patterns, though the real world applications are not as clean as one might like. To keep things simple, we mainly restrict the analysis to industries with two These is necessary as a starting point. We consider extensions where possible. 2 Oligopoly: Choosing a Strategy The market could operate sequentially then the other responds ²or simultaneously Also, the ³decision´could be a choice of quantity to produce, with the demand price, So, it makes sense to consider at least four possible strategic situations: quantity leadership, price leadership, simultaneous quantity setting, and simultaneous price setting. 2
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3 Quantity Leadership This is known as the Stackelberg model. This makes the most sense in an industry
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This note was uploaded on 09/16/2009 for the course ECONOMICS 1010A taught by Professor Jeffreya.miron during the Fall '09 term at Harvard.

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Lecture_23_Oligopoly_and_Mono_Comp - Lecture 23: Oligopoly...

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