PPTChapter9 - Managerial Economics Professor Cliff Hawley...

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Prof. Clifford B. Hawley Managerial Economics Professor Cliff Hawley BADM 631 Oligopoly (Chapter 9)
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Prof. Clifford B. Hawley Oligopoly Many models of oligopoly exist. Here are three of the more important ones.: --- the Cartel model --- the Kinked Demand Curve model --- the Price Leadership model
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Prof. Clifford B. Hawley Cartel Cartel Agreement among firms to set the monopoly price and restrict output Problem: Incentive to cheat Next slide: agreement of monopoly price of $8 makes total profits of the two companies together the greatest. But at $8, each firm has an incentive to lower price.
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Prof. Clifford B. Hawley Cartel
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Prof. Clifford B. Hawley Kinked Demand Curve Model Proposed by Paul Sweezy. Few firms in the market. Each producing differentiated products. Barriers to entry exist. If an oligopolist raises price, other firms will not follow. If an oligopolist lowers price, other firms will follow. Implication is that demand curve will be kinked, MR will have a discontinuity, and oligopolists will not change price when marginal cost changes
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Prof. Clifford B.
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