Lecture 13: October 13, 2005
Recall the general market structure ranging from monopoly (price making) behavior to
perfect competition (price taking) behavior. Oligopoly falls somewhere in the middle.
In these models, the price fo
low price immediately, the market clears, the monopolist makes no rent, and the game
So the idea here is that the monopolist (though she is the only rm in the market) is
competing again her future selves. As the time between oers gets smaller, t
Which, taking the rst and last line together, violates IRL . QED.
Claim 3: If ICH does NOT bind, then IRH does bind. Proof: Consider ICL :
L v (qL ) TL L v (qH ) TH .
And a nonbinding ICH :
H v (qH ) TH > H v (qL ) TL .
Suppose IRH does NOT bind (proceed
Given the consumers reservation utility, u(0, y ) = v (0) + y , his net gain from buying
v (x ) + y A px (v (0) + y ) = v (x ) v (0) px A.
v (s)ds px A = .
The integral term is literally the consumer surplus for the consumer from buying the
Economics 662: Theoretical IO
Updated: December 25, 2005
Lecture 1: September 1, 2005
The course is laid out according to market structure: from monopoly to oligopoly to