ECON 1B03 Lecture Notes - Lecture 10: Nash Equilibrium, Strategic Dominance, Tacit Collusion

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ECON 1B03 Full Course Notes
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ECON 1B03 Full Course Notes
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Oligopoly characteristics: few sellers, usually big firms, homogeneous or nearly identical products (like competitive markets, ex. Interdependent firms o(cid:374)e fir(cid:373)"s de(cid:272)isio(cid:374)s effe(cid:272)ts a(cid:374)other fir(cid:373)"s profits. Duopoly is an oligopoly with only two members (simplest type of oligopoly) Cooperative agree on monopoly outcome and split the production and make a maximum profit. Collusion an agreement among firms in a market about quantities to produce or prices to charge (formed by cooperation) Cartel group of firms acting in unison (formed by a collusion) Splitting the monopoly outcome (cooperative) results in the temptation of both parties to cheat, to increase their profits. How cheating works: one firm knows the other will produce 25 barrels. Suboptimal outcome occurs when a firm (in a duopoly) cheat and receives the second-best profit. Nash equilibrium situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the others have chosen (always results in suboptimal outcome)

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