Econ 1201 1st Edition Lecture 14Outline of Previous Lecture – Monopolistic Competition and OligopolyI. Assumptions and Implications of Monopolistic CompetitionII. Assumptions and Implications of an OligopolyIII. Interdependent Behavior in OligopoliesOutline of Current Lecture – Non Cooperative Firms I. Cartel ReviewII. Non Cooperative firmsIII. Review of all firmsCurrent Lecture I. Cartel Review ~ what makes a cartel successful - Threat to cheaters- Ability to catch cheaters- Restrictions to entry (ex. local garbage cartel – only one garbage company can workin certain areas)- Low number of firms II. Non Cooperative (Game Theory, based on Prisoner’s Dilemma)Prisoners Dilemma: shows why players have difficulty cooperating even though they would benefit from cooperation when two people are isolated after a crime they have no way of communicating with eachother to decide if they are going to tell the truth and come forward about what they did or lieMatrix: EXXONLow HighTEXACO Low 500/500 1000/200High 200/1000 700/700Exxon’s Decision: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. If Texaco prices low & Exxon prices low, Exxon will make $500 If Texaco prices low & Exxon Prices High, Exxon will make $200 If Texaco prices high & Exxon Prices low, Exxon will make $1000 If Texaco prices high & Exxon Prices High, Exxon will make $700DOMINANT STRATEGY: price should be low regardless of what Texaco does Texaco’s Decision If Exxon prices low & Texaco prices low, Texaco will make $500 If Exxon prices low & Texaco prices high, Texaco will make $200 If Exxon prices high & Texaco prices low, Texaco will make $1000 If Exxon prices high & Texaco prices high, Texaco will make $700DOMINANT STRATEGY: price should be low regardless of what Exxon does** Consumers are better off with non-cooperative **II. Review Perfect CompetitionMonopolistic CompetitionOligopoly Monopoly# of firms Many Many Few OneProduct Same Slightly differentiatedSame or differentiatedUniqueBuyers Many Many Many ManyInformation Perfect Good Imperfect ImperfectFreedom of entryNo barriers to entryNo barriers to close substitutesBarriers to entry Barriers to entryPricing Price taker Price maker Price maker Price makerLong Run profits?No No Depends on cooperative vs non-cooperativeYes Productive Yes No No Noefficiency Allocative efficiencyYes No No NoRegulation in Natural Monopolies force no profits, Allocative efficiency, and more productive efficiency than other