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Unformatted text preview: 1 Finally the last week! Oligopoly Oligopoly Chapter 27 Oligopoly Â¡ A monopoly is an industry consisting a single firm. Â¡ A duopoly is an industry consisting of two firms. Â¡ An oligopoly is an industry consisting of a few firms. Particularly, each firmâ€™s own price or output decisions affect its competitorsâ€™ profits. WEEK 121 ECON2101 S1 2010 2 Oligopoly Â¡ How do we analyze markets in which the supplying industry is oligopolistic? Â¡ Use game theory Â¡ We will typically consider the Â¡ We will typically consider the duopolistic case of two firms supplying the same product. WEEK 121 ECON2101 S1 2010 3 Four things Â¡ Quantity/Cournot competition : Each firm noncooperatively and simultaneously choose quantities to maximize profits choose quantities to maximize profits. Â¡ Price/Bertrand competition : Firms independently and simultaneously choose prices to maximize profits. Â¡ 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 . Â¡ Collusion: Firms choose together to maximize the sum of profits. WEEK 121 ECON2101 S1 2010 4 Quantity/Cournot Competition Â¡ Assume that firms compete by choosing output levels. Â¡ If firm 1 produces y 1 units and firm 2 produces y 2 units then total quantity 2 supplied is y 1 + y 2 . Â¡ The market price will be p(y + y ). Â¡ The market price will be p(y 1 + y 2 ). Â¡ The firmsâ€™ total cost functions are c (y ) and c (y ) c 1 (y 1 ) and c 2 (y 2 ). WEEK 121 ECON2101 S1 2010 5 Quantity Competition Â¡ Suppose firm 1 takes firm 2â€™s output level choice y 2 as given. Then firm 1 2 sees its profit function as Î ) y y p y y y c y + Â¡ Given y 2 , what output level y 1 Î 1 1 2 1 2 1 1 1 ( ; ) ( ) ( ). y y p y y y c y = + âˆ’ 2 1 maximizes firm 1â€™s profit?...
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 Fall '10
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 Game Theory, Monopoly, Oligopoly, Inverse demand function, quantity competition

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