EC120 Chapter Notes - Chapter 17: Strategic Dominance, Monopoly Profit, Nash Equilibrium
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EC120 Full Course Notes
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Document Summary
Oligopoly: a market structure in which only a few sellers offer similar or identical products. The essence of an oligopolistic market is that there are only a few sellers. As a result, the actions of any one seller in the market can have a large impact on the profits of all the other sellers. Oligopolistic firms are interdependent in a way that competitive firms are not. Game theory: the study of how people behave in strategic situation. Duopoly example ( oligopoly with only two members): Jack and jill and schedule for water, assume no marginal cost. If the market for water was perfectly competitive, the production decisions of each firm drive price equal to marginal cost. Thus, under competition, the equilibrium price of water would be zero, and the equilibrium quantity would be 120 l. For a monopoly, total profit is maximized at a quantity of 60 l and a price of per liter.