Six per page Part I ECON 2101 S1 2010

Six per page Part I ECON 2101 S1 2010 - 1 Finally the last...

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Unformatted text preview: 1 Finally the last week! Oligopoly Oligopoly Chapter 27 Oligopoly ¡ A monopoly is an industry consisting a single firm. ¡ A duopoly is an industry consisting of two firms. ¡ An oligopoly is an industry consisting of a few firms. Particularly, each firm’s own price or output decisions affect its competitors’ profits. WEEK 12-1 ECON2101 S1 2010 2 Oligopoly ¡ How do we analyze markets in which the supplying industry is oligopolistic? ¡ Use game theory ¡ We will typically consider the ¡ We will typically consider the duopolistic case of two firms supplying the same product. WEEK 12-1 ECON2101 S1 2010 3 Four things ¡ Quantity/Cournot competition : Each firm noncooperatively and simultaneously choose quantities to maximize profits choose quantities to maximize profits. ¡ Price/Bertrand competition : Firms independently and simultaneously choose prices to maximize profits. ¡ Quantity leadership : Sequential quantity choice One firm chooses quantity first choice. One firm chooses quantity first. Other firm chooses quantity next. First firm is Stackelberg leader , second firm is the Stackelberg follower . ¡ Collusion: Firms choose together to maximize the sum of profits. WEEK 12-1 ECON2101 S1 2010 4 Quantity/Cournot Competition ¡ Assume that firms compete by choosing output levels. ¡ If firm 1 produces y 1 units and firm 2 produces y 2 units then total quantity 2 supplied is y 1 + y 2 . ¡ The market price will be p(y + y ). ¡ The market price will be p(y 1 + y 2 ). ¡ The firms’ total cost functions are c (y ) and c (y ) c 1 (y 1 ) and c 2 (y 2 ). WEEK 12-1 ECON2101 S1 2010 5 Quantity Competition ¡ Suppose firm 1 takes firm 2’s output level choice y 2 as given. Then firm 1 2 sees its profit function as Π ) y y p y y y c y + ¡ Given y 2 , what output level y 1 Π 1 1 2 1 2 1 1 1 ( ; ) ( ) ( ). y y p y y y c y = + − 2 1 maximizes firm 1’s profit?...
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Six per page Part I ECON 2101 S1 2010 - 1 Finally the last...

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