ECON1010 Lecture Notes - Lecture 9: Nash Equilibrium, Oligopoly
Lecture 9 - Market Power: Oligopoly
Wednesday, 2 May 2018
10:00 AM
<<Chapter8_Marco_slides(2).pptx>>
• Oligopoly is a market structure that features a small number of firms
• This means that strategic interactions are very important
o The actions of one firm has direct effects on the other firm
o In making its own decisions, a firm tries to anticipate what the other firms are about
to do (game theory)
• Game theory models strategic behaviour by agents who maximise their own surpluses and
understand that their action (indirectly) affect the actions of other agents
• Dominant strategy represents a strategy that is preferred by a player irrespective of the
strategy selected by the other player
• Cartels represent private agreements aimed at increasing the profit of the central
members by reducing competition in the market
• Coordination games are a type of games that capture those situations where players
benefit from coordinating their decisions (choosing the same strategy)
• Battle of the sexes is a game in which players differ over which activity they would prefer
to engage in, but they still prefer engaging in the same activity over going alone
• A strategy profile denotes a set of strategies, one for each player
• A Nash equilibrium is a play of the game where each strategy is a best reply to the other
o This occurs when each player chooses the strategy that gives them the highest
payoff, given the strategy selection of the other player
o Neither player has an incentive to deviate
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