SC ECON 221 - Oligopolies (4 pages)

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This lecture discusses the market concept of oligopolies. The lecture also covered specifics of oligopolies such as: game theory, profit maximization, and tacit collusion.

Lecture number:
Lecture Note
University Of South Carolina-Columbia
Econ 221 - Prin of Microeconomics

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ECON 221 Lecture 19 Outline of Last Lecture I Monopolistic Competition II Short Run effects III Long Run effects IV Efficiency and Implications Outline of Current Lecture I Oligopoly characteristics II Game theory a Strategic Interaction b Dominant Strategy III Maximizing Profits IV Tacit Collusion Current Lecture Oligopolies Lecture 20 Commonly there are just a few firms in an industry o Operating systems phone providers airplane manufacturers airlines o Lands somewhere between the two extremes of perfect competition and monopolies Perfect competition competition but no market power Monopoly complete market power no competition o What do we mean by market power PC because there are thousands of firms no matter how much one produces they have no impact on market level supply or price Monopoly only firm in the market so changes in quantity affect market level Q s and price These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Oligopoly One of a handful of firms so many actions impact the market just as other firms actions impact the market Game Theory o Oligopolies engage in Strategic Interaction Strategic Interaction Any situation where my best action depends on what you are doing and vice versa Prisoner s dilemma Not strategic interaction How many donuts to buy how much to produce in a perfectly competitive market Game Theory is the study of strategic interaction o Terms and Ideas Strategy specifies a plan for what to do conditional on what the other guy is doing Ex Prisoner s dilemma best strategy is RAT OUT PARTNER when he rats me out and RAT OUT PARTNER when he stays quiet Dominant Strategy if one action is better regardless of what the other guy does it is a dominant strategy Nash Equilibrium a situation where no one has an incentive to change their strategy given what others are doing In P D the situation where both players play ALWAYS RAT OUT OTHER PLAYER

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