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L27X oligopoly2 jpw

# L27X oligopoly2 jpw - Oligopoly Game Theory Lecture 27...

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microL27-F09-1 http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Oligopoly & Game Theory Lecture 27 Jennifer P. Wissink ©2009 John M. Abowd and Jennifer P. Wissink, all rights reserved. December 3, 2009

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microL27-F09-3 http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Collusion With A Duopoly- mimic a multi-plant monopoly

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microL27-F09-4 http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Chamberlinian Collusion With A Duopoly- mimic a multi-plant monopoly With only a couple/few identical firms, and homogeneous output, this might be expected. However, when firms have different cost structures… Cournot-Nash Joint Profit Cournot-Nash Joint Profit “Collusive Monopoly” Joint Profit “Collusive Monopoly” Joint Profit
microL27-F09-5 http://www.arts.cornell.edu/econ/wissink/econ1110jpw/ Collusion Problems Frequently, side payments are essential to the cooperative solution. Especially when the cartel members have different cost structures. OPEC example: Iran and Saudi Arabia. FACT: Iran’s marginal costs increase more quickly than do Saudi Arabia’s. Suppose they do not cooperate and end up at the Cournot-Nash solution: Get profits such that: Π SA + Π I = Π joint Suppose they cooperate and implement the monopoly solution: Get profits such that: SA + I = joint Since Iran has the “crummy” marginal cost curve, it will be told not to produce very much in the collusive arrangement. Could be that: joint > Π joint and also that SA > Π SA BUT Π I > I ! If joint cartel profit is larger than the joint non-cooperative profit, then there is enough to make side payments to Iran to get Iran’s cooperation.

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