12_1 Econ notes

12_1 Econ notes - (11/29 Tuesday) Chapter 27 Oligopoly A...

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(11/29 Tuesday) Chapter 27 Oligopoly A Monopoly is an industry consisting of a single firm; A duopoly is an industry consisting of two firms; An Oligopoly is an industry consisting of few firms. We will specifically consider industries where each firm’s price or output decision affects its competitor’s profits How do we analyze market in which the supplying industry is oligopolistic? Consider the duopolistic case of two firms supplying the same products. We will assume either each firm chooses a quantity to produce or each firm chooses a price for its product. Classification of theories of oligopoly: Collusive and Non-Collusive (*important) Collusion: a situation where firms jointly determine their prices or quantities to maximize joint profits. December 1 st , Thursday Classification of theories: 1. Collusive 2. Non-collusive: a)sequential moves 1) quantity setting 2) price setting b) simultaneous moves 1) quantity setting 2) price setting Sometimes one firm decides ahead of the other and when other firm makes its decision, it knows what the first firm has decided The decisions are then called “ sequential moves The firm that decides first is called the----leader The other firm is called a -----follower Called Quantity Leadership (or the stackelberg model) What if firms compete using only price-setting; instead of using only quantity- setting? Called Price Leadership Another way to model the timing of the firms’ decision: -So far it has been assumed that firms choose sequentially - Sometimes, when each firm makes a choice, it doesn’t know the choices make by the make by the other firm. -
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12_1 Econ notes - (11/29 Tuesday) Chapter 27 Oligopoly A...

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