ECON 202 1nd Edition Lecture 31 Outline of Last Lecture I. Oligopolya. Characteristics of an Oligopic Industryb. Models of an Oligopolyi. Cournot – Nash ModelOutline of Current Lecture I. Oligopolya. Sequential Move Gamesi. Decision Treeb. CartelsCurrent LectureOligopoly Sequential Move Games – players take turns choosing actions or strategiesEX: Assumption:- One firm in the industry- No barriers to entry- Once the firms sets a price it can’t be changed- If a new firm enters they WILL charge a lower price than the existing firmDecision TreeFirm A will charge a low price in order tobreak even so they wont lose money- Have 1 firm in the industry, butprices are low, so it’s not amonopolyThese 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. Firm AFirm BFirm BA = -$50B = $90A = $100B = $0A = -$50B = -$10A = $0B = $0HIGH PRICELOW PRICEENTERENTERSTAY OUTSTAY OUTCartels- A group of firms that get together and try to act like a single firm (a monopoly). They COLLUDE by agreeing to restrict output. This raises PRICE and increases PROFIT- Illegal in the US- Typically fail because member firms have incentives to cheat cartel agreemento increase output to raise profit after
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