class 20 dynamic games post2-1

class 20 dynamic games post2-1 - Announcement Class 21...

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Announcement
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lass 1 Class 21 Monopolistic Competition First Mover Advantage Bargaining
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Problem Set ote the Reading ± Note the Reading ± Do the problem set before the next lecture: You train today’s material and prepare for next time
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Last Time: Dynamic Games ash quilibria Subgame 1 1 Nash Equilibria Player 1: Home 2 Player 2: Home 2, Home 2 Subgame 2 2 2 Player 1: Home 1 Player 2: Home 1, Home 1 Player 1: Home 1 layer 2: Home 1 Home 2 2, 1 0, 0 0, 0 1, 2 Player 2: Home 1, Home 2 Subgame Perfect Equilibria in Home Choice: Subgame 1: player 2 must choose Home 1. ubgame p layer ust choose Home Subgame 2: player 2 must choose Home 2.
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Outline ournot with N Firms ± Cournot with N Firms ± Monopolistic Competition ± Bargaining in the Edgeworth Box: tertemporal Choice ± Intertemporal Choice
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Cournot with more than two firms arket Demand: 1000 Q Q ( ) () Market Demand: Costs: c =− = PQ qc q '0 π −− =+ + + = ii i i i d q c qP Q q dq 12 What is the Equilibrium with N Firms? : total quantity of other firms .... Profit: = ++ QQ q q qPQ q c ( ) ' ' 11 ε ⇒− = ⇒= = = i i Pc q P qP P PP N ' 1 If all firms produce the same: = i qQ 1 ' ' == i i N N QP N 1 P c P N
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Cournot with more than two firms arket Demand: 1000 Q Q Lerner Formula ( ) () Market Demand: Costs: c =− = PQ qc q Relative Markup is equal to inverse elasticity of residual demand. sidual emand st ormal 12 What is the Equilibrium with N Firms? : total quantity of other firms .... Profit: π −− = ++ =+ ii QQ q q qPQ q c If N = 1 , residual demand is just normal demand (monopoly). If N increases, residual demand becomes ore lastic nd e ark p ecomes more elastic and the mark up becomes smaller. If N is “infinite,” mark up becomes zero: p=c p 1 Pc ε P N
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Cournot with more than two firms Lerner Formula Symmetric Equilibrium: Q=Nq Relative Markup is equal to inverse elasticity of residual demand.
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This note was uploaded on 12/10/2011 for the course ECON 401 taught by Professor Burbidge,john during the Winter '08 term at Waterloo.

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class 20 dynamic games post2-1 - Announcement Class 21...

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