Advertising and Collusion in Oligopoly Notes
Advertising and Collusion in Oligopoly
Oligopolists have a strong incentive to engage in tacit collusion
Take airline industry as an example
In theory, any airline should be able to claim superior safety
Yet no
Common Math Terms Used in Economic Analysis Notes
Common Math Terms Used in Economic Analysis
Y = a + b1X1 + bnXn=> the value of Y depends on the values of n different
other variables; a ceteris paribus assumption => we assume that all X
variable values e
Graphical Concepts Notes
Graphical Concepts (Variable Relationships)
Y axis:
a vertical line in a graph along which the units of
measurement represent different values of, normally, the Y or
dependent variable.
Y axis intercept: the value of Y when the va
Monopolistic Competition Notes
On any given day, you are probably exposed to hundreds of
advertisements
In perfect competition and monopoly firms do little, if any, advertising
Where, then, is all the advertising coming from?
The Concept of Imperfect Comp
Fundamentals of Managerial Economics Notes
Microeconomics is the study of how individual firms or consumers do
and/or should make economic decisions taking into account such
things as:
1.
Their goals, incentives, objectives.
2.
Their choices, alternatives
Oligopoly Competition Notes
Oligopoly
An oligopoly is a market dominated by a small number of strategically
interdependent firms
In such a market, each firm recognizes its strategic interdependence
with others
Number of Firms
Oligopoly requires that a few
Mathematics of Optimization Notes
Optimization a decision maker wishes to either MAXimize or MINimize a
goal (i.e. objective function)
For a function to have a maximum or minimum value, the corresponding
graph will reveal a nonlinear curve that has either
Simple Oligopoly Games Notes
To apply the same method to a simple oligopoly market
Duopoly - Oligopoly market with only two sellers
Assume that Gus and Filip must make their decisions independently
No matter what Filip does, Guss best move is to charge a
Type of Collusion Notes
In real world, oligopolists will usually get more than one chance to
choose their prices
The equilibrium in a game with repeated plays may be very different
from equilibrium in a game played only once
Explicit Collusion
Simplest fo
Marginal Analysis Notes
Example of a Business (Economic) Decision Resolved with Marginal
Analysis
Goal: max dollar sales of a product
Constraint: advertising budget
Marginal decision rule: incremental dollar sales generated per
incremental dollar spent sh
The Prisoners Dilemma Notes
Each of four boxes in payoff matrix represents one of four possible
strategy combinations that might be selected in this game
Upper left box: Both Rose and Colin confess
Lower left box: Colin confesses and Rose doesnt
Upper rig
Payback Firm value of Money Notes
Payback Period
=
an investment analysis alternative
=
period of time required for the sum of net cash flows to equal the
initial cost
=
value of n such that
Firm Valuation
The value of a firm equals the present value of a