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10-11-07 - -problem how do you know what define leader...

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10-11-07 Econ Oligopoly -Traditional Model 1) Kinked Demand Model: - Assumption : each firm believes that if it raises its price, others will not follow, but if it cuts its price, other firms will cut theirs. - When MC moves within the range of MR, nothing changes. - Problem : how does demand move and MC goes out of D then Q decreases and price increases. (moves relatively fast.) When MC increases then others MC increases too. So in that case the assumption would not work. -Dominant Firm Oligopoly -In the field the LEADER become a price setter. (Ex. Cigarette) -Other competitive Fringe become price takers.
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Unformatted text preview: -problem: how do you know what define leader? It’s not so accurate!!!-Oligopoly Game Theory-Game Theory : (4 elements) 1. Players: who are decision makers. 2. Strategies: course of actions open to player in a game. (could be simple or complex) 3. Payoff: returns to the players of a game for each possible combination of strategy. 4. Outcome: result of the game-Nash Equilibrium : A game is in equilibrium if each player’s strategy is the best one (optimal) given the other player’s strategy.-In a Nash Equilibrium, no player has the incentive to deviate....
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