Chap1516 - Krugman and Wells Chapter 15 & 16 Steven J....

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Krugman Krugman and Wells and Wells hapter 15 & 16 Chapter 15 & 16 Steven J. Haider EC201 Spring 2010
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Overview Chapter 3-7, 10-13: develops and uses competitive odel model hapter 9: develops optimal decision making a little Chapter 9: develops optimal decision making a little Chapter 14: we move to the polar opposite model— monopoly (still using Chap. 9 ideas) Chapters 15 & 16: we examine more realistic cases Oligopoly: few firms, whose actions now can affect each other ools of game theory become important Tools of game theory become important Monopolistic competition: many firms with differentiated products EC201-15-p2
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Recall from Chap. 14 Fig 14-1: types of market structure We’ve done PC—many firms We’ve done M—one firm ligopoly (Chap 15) Oligopoly (Chap 15) Examples: Soda (Pepsi, Coke), Airplanes (Boeing, Airbus), OS (MS, Linux, pple) Apple) Difficult to examine because of possibility of strategic interaction Monopolistic competition (Chap 16) ifferentiated products and Differentiated products and free entry/exit Zero profits! EC201-15-p3
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Some definitions Duopoly : an industry served by only two firms n example of an oligopoly An example of an oligopoly Collusion : when sellers cooperate to raise their joint profits Example: ADM was colluding with Ajinomoto interested: This American Life, The Fix is In If interested: This American Life, The Fix is In Cartel : an agreement among several producers to obey output restrictions in order to increase joint profits Example: OPEC p Collusion and cartels are generally illegal EC201-15-p4
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To give you the flavor… ….we’ll use data and figures from Chapter 14 See Figures 14-5 and 14-6, and Table 14-1 Simplified example with constant MC 1. Duopolists would do best to act like a monopolist Acting jointly so that MR=MC, perhaps splitting profits in half Illegal, yes, but…starting place 2. Both have an incentive to cheat by producing more Quantity competition 3. Quantity competition Choose quantity level, then price is determined Move part way towards the competitive equilibrium 4. Price competition
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This note was uploaded on 05/18/2010 for the course ECONOMIC Ec 201 taught by Professor Haider during the Spring '10 term at MSU - Iligan Inst of Tech.

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Chap1516 - Krugman and Wells Chapter 15 & 16 Steven J....

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