Monopolistic competition and oligopoly

Monopolistic competition and oligopoly - Session XIIV:...

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Unformatted text preview: Session XIIV: Monopolistic competition, Games and Oligopoly PGP I Term I Entry barrier: Natural or artificial Product differentiation: horizontal or vertical Nature of competition: Perfect competition: None of the above Monopoly: High entry barrier, no product differentiation Monopolistic competition: Low entry barrier, differentiated products Oligopoly: High entry barrier, products may or may not be differentiated Sources of market power Characteristics approach (Lancaster) Horizontal product differentiation (Hotelling) Maximum and minimum product differentiation Vertical product differentiation: quality competition. Product differentiation Monopolistic competition-short run PSR QSR MC ATC DSR MRSR Quantity Price MC=MR Profit Monopolistic competition-long run PSR QSR MC AC DSR MRS R Quantity Price PLR QLR DLR MRLR Comparison with perfect competition PC QC MC AC Quantity Price PLR QLR DLR MRLR Excess capacity in long run Session XVI: Introduction to Game theory PGP I Term I Interactive decision theory: used when there is potential for conflict or cooperation. Important elements: Player, Action or moves, Strategy (pure or mixed), Outcome, Pay-off. Objective: Finding optimal strategy for each player. Assumptions: Rationality, Common knowledge Applications in Economics: Corporate strategy, trade negotiation, bargaining, auction. Introduction to game theory Cooperative vs. non-cooperative Zero sum game vs. non-zero sum One off vs. repeated Simultaneous move vs. sequential move Continuous vs. discrete pay off Complete vs. asymmetric information Representation: Normal/strategic form game; Extensive form game Many types of games Player B Player A Head Tail Head 1,-1-1,1 Tail-1,1 1,-1 An example: Matching Pennies Dominant strategy Iterated dominance Nash equilibrium Sub-game perfection Different methods of solving games The strategy one player will choose no matter what the other player chooses. Dominant strategy Airbus Boeing High price Low price High price 5, 5 3, 6 Low price 6, 3 4, 4 Low price is dominant strategy for Boeing Low price is dominant strategy for Airbus Your friend You Take exam Dont take exam Take exam A, F A, F Dont take exam F, A B, B Grade Point Average Game Dominant strategy for you? Robber B Robber A Confess Silent Confess 5 yrs, 5 yrs...
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Monopolistic competition and oligopoly - Session XIIV:...

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