UA EC 110 - A Basic Outline for Oligopoly Markets(1) (4 pages)

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A Basic Outline for Oligopoly Markets(1)



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A Basic Outline for Oligopoly Markets(1)

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Pages:
4
School:
University of Alabama
Course:
Ec 110 - Prin of Microeconomics

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A Basic Outline for Oligopoly Markets This document provides a basic outline of important concepts for understanding oligopoly markets It is clearly not complete but should serve as a way of filling in the outline to develop some detailed knowledge of the features of an oligopoly setting The key fact is that it is not possible to develop a clear unambiguous model of these markets in the way we can for competitive or monopoly market structures Note that examples will be discussed in class rather than presented as a part of this handout Some of the basics of oligopoly Understanding Entry Barriers Alternative Models to understanding oligopoly markets Cartels and Collusion Monopolistic Competition this is discussed in Chapter 16 we will discuss this very briefly Basic Oligopoly Facts Mutual Interdependence Strategic Interaction Market Structure Conditions Modeling Oligopolies Cooperation vs Non Cooperation Begin with simplest case the Duopoly Best Response concept Equilibrium Concepts Nash Equilibrium Game Theory What is Game Theory Noncooperative Games Central concept of the Nash Equilibrium Prisoner s Dilemma Dominant Strategy Equilibrium Alternatives Oligopoly Markets The key element to understanding this type of market is the concept of Mutual Interdependence This term simply implies that the actions of one firm affect the outcome for all firms For example if one firm decides to raise its price it affects its own demand but it also affects the demand for the other firms in the market as well This in turn affects the profits of that firm and all of the other firms That this means is that all firms have to take into account not only their own actions but also the actions of all of the other firms in the market This means that firms behavior is a form of Strategic Interaction It is useful to compare this type of behavior with a monopolist and a firm in a perfectly competitive market In both cases individual firms act without considering its impact on anyone else nor do



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