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Oligopoly - Oligopoly Chapter to Click 15 edit Master...

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Click to edit Master subtitle style 11 Oligopoly Chapter 15
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Course Outline {93B6C7DD-B656-4597-8DAF-0C35C7E5FCD7} Microeconomics troduction is Economics? Markets Work nd and supply tional Topics holds’ Choice Elasticity ncy and Equity t Actions in Markets s and Markets y and Demand references, and Choices onomic Problem put and Costs ct Competition Monopoly istic Competition Oligopoly 22
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Lecture Outline I. What is Oligopoly? II. Two Traditional Models of Oligopoly 1. Kinked Demand Curve Model 2. Dominant Firm Model III. Game Theory 1. Prisoners’ Dilemma 2. Nash Equilibrium 3. Sequential Games and Subgame Perfect Nash Equilibrium 33
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44 I. Oligopoly n A small number of firms compete. n Same or differentiated product n Price and quantity of a producer depends upon those of the other producers’.
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55 I. What is Oligopoly? n Barriers to Entry q Either natural or legal barriers to entry can create oligopoly. q Figure 15.1 shows two oligopoly situations. q In part (a), there is a natural duopoly —a market with two firms.
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66 I. What is Oligopoly? q In part (b), there is a natural oligopoly market with three firms.
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77 I. What is Oligopoly? n Examples of Oligopoly q This figure shows some examples of oligopoly. q An HHI that exceeds 1800 is generally regarded as an oligopoly. q An HHI below 1800 is generally regarded as monopolistic competition.
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88 II.1. Sweezy (Kinked-Demand) Model n Few firms in the market q Each producing differentiated products. n Barriers to entry n Each firm believes rivals will match (or follow) price reductions, but won’t match (or follow) price increases. n Key feature of Sweezy Model q Price-Rigidity
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99 P Q D 1 P 0 Q 0 P L D2 (Rival matches your price change) P H (Rival holds its price constant)
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1010 P Q D 1 P 0 Q0 D2 (Rival matches your price change) (Rival holds its price constant) D Demand if Rivals Match Price Reductions but not Price Increases
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1111 II.1. Sweezy Marginal Revenue P Q D 1 P 0 Q 0 D2 (Rival matches your price change) (Rival holds its price constant) MR 1 MR 2 D MR
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II.1. Sweezy Profit-Maximization 1212 P Q P 0 Q 0 D MR MC MC H MC L
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II.2. Dominant Firm Oligopoly n
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