Oligopoly and Game Theory

Oligopoly and Game Theory - 4 Oligopoly Games Duopoly Firm...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
1 What is Oligopoly? The distinguishing features of oligopoly are: ± Natural or legal barriers that prevent entry of new firms ± A small number of firms compete What is Oligopoly? Examples of Oligopoly An HHI that exceeds 1800 is generally regarded as an oligopoly. An HHI below 1800 is generally regarded as monopolistic competition.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Oligopoly Games Game theory is a tool for studying strategic behavior, which is behavior that takes into account the expected behavior of others and the mutual recognition of interdependence. What Is a Game? All games share three features: ± Players ± Strategies ± Payoffs Oligopoly Games All three elements of a game are summarized by a payoff matrix. A payoff matrix is a table that shows the payoffs for every possible action by each player for every possible action by the other player.
Background image of page 2
3 Oligopoly Games Oligopoly Games If both players are rational and choose their actions in this way, the outcome is an equilibrium called Nash equilibrium —first proposed by John Nash.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 4 Oligopoly Games: Duopoly Firm 1: $1000 Firm 2: $1000 Firm 1: $650 Firm 2: $1400 Halloween Candy Firm 1: $1400 Firm 2: $650 Firm 1: $1250 Firm 2: $1250 Regular Candy Hershey Halloween Candy Regular Candy M&M Oligopoly Games The Disappearing Invisible Hand The pursuit of self-interest does not promote the social interest in these games . 5 Oligopoly Games In the prisoners dilemma game, the Nash equilibrium is a dominant strategy equilibrium , by which we mean the best strategy for each player is independent of what the other player does. Not all games have such an equilibrium. Oligopoly Games: coordination Gap: $100M AT: $120M Gap: $70M AT: $50M Pink Gap: $50M AT: $70M Gap: $120M AT: $100M Orange Ann Taylor Pink Orange GAP 6 Oligopoly Games: Duopoly with a twist Firm 1: $1000 Firm 2: $1000 Firm 1: $650 Firm 2: $1100 Halloween Candy Firm 1: $1400 Firm 2: $650 Firm 1: $1250 Firm 2: $1250 Regular Candy Hershey Halloween Candy Regular Candy M&M...
View Full Document

This note was uploaded on 12/14/2010 for the course ECON 001 taught by Professor Stein during the Fall '07 term at UPenn.

Page1 / 6

Oligopoly and Game Theory - 4 Oligopoly Games Duopoly Firm...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online