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Chapter 13
Oligopoly and Monopolistic Competition
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Chapter Outline
13.1 Market Structures
13.2 Cartels
Why Cartels Succeed or Fail
Maintaining Cartels
Mergers
13.3 Noncooperative Oligopoly
13.4
Cournot Oligopoly Model
Cournot Model of an Airline Market
The Cournot Equilibrium with Two or More Firms
The Cournot Model with Nonidentical Firms
13.5
Stackelberg Oligopoly Model
Calculus Solution: Airlines Example
Graphical Solution: Airlines Example
Why Moving Sequentially Is Essential
Strategic Trade Policy: An Application of the Stacklberg Model
13.6
Comparison of Collusive, Cournot, Stackelberg, and Competitive Equilibria
13.7
Bertrand Oligopoly Model
Bertrand Equilibrium with Identical Products
NashBertrand Equilibrium with Differentiated Products
13.8 Monopolistic Competition
Monopolistically Competitive Equilibrium
Fixed Costs and the Number of Firms
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Teaching Tips
Chapter 13 begins with a general description of market structures that lie between perfect competition and
monopoly in the competitive spectrum. Table 13.1 in the text provides a good summary of eight characteristics
of various market structures, plus an example of each. It would be well worth the time to begin this section by
discussing this table with the class and asking the students to come up with additional examples of each market
structure.
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Perloff •
Microeconomics: Theory and Applications with Calculus
There are a number of models presented in this chapter and the next, and you may not have time to cover
all of them. If they are presented too quickly in succession, students are more likely to get confused between
the models and their outcomes. You might consider introducing game theory as the primary method of
analysis, and discuss other approaches (e.g., the graphical approach to the Cournot and Stackelberg
models) in the context of game theory.
When presenting game theory, consider dividing the class into small groups before making any formal
presentation of types of equilibria and strategic rules. Give each group three or four games to solve,
including a simple zerosum game, a dominant strategy equilibrium where players follow a given strategy
no matter what the other does, and a Nash equilibrium where the payoffs create a prisoners’ dilemma.
(The Additional Questions and Problems section in this chapter includes sample payoff matrices.) You can
ask the groups to simply play the games at first, under the following rules. First, assume that each player must
move simultaneously, and that no cooperation is allowed. Second, allow collusion between players, and
finally, assume that one player gets to move first. Finally, you could ask the groups to try to write down general
decisionmaking rules for players, and note if they need to modify those rules when the game is played
repeatedly. If you try this, you may find that students are quite good at identifying strategic decisionmaking
rules once they understand the games. By asking students to play the games first, you can then go back through
the various outcomes and identify them as Cournot, cartel, and so on. One of the great advantages of game
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 Spring '08
 CONSTANTINE

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