REAL 1820 Lecture Notes - Lecture 5: Trick-Trick, Nash Equilibrium, Oligopoly
30 Oct 2017
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What is oligopoly? (beer, cigarette, chocolate, and soft drinks industry) Market where natural or legal barriers prevent the entry of new firms. Natural and legal barriers to entry can create oligopoly. A legal oligopoly might arise even where the demand and costs leave room for a larger number of firms. With a s(cid:373)all (cid:374)u(cid:373)(cid:271)e(cid:396) of fi(cid:396)(cid:373)s, ea(cid:272)h fi(cid:396)(cid:373)"s p(cid:396)ofit depe(cid:374)ds o(cid:374) e(cid:448)e(cid:396)y fi(cid:396)(cid:373)"s a(cid:272)tio(cid:374)s. Firms face the temptation to form a cartel: group of firms acting together to limit output, raise price, and increase profit (and act like a monopoly) A tool for studying strategic behaviour behaviour that takes into account the expected behaviour of others and the recognition of mutual interdependence. All games have four common features: rules, strategies, payoffs, outcome. In nash equilibrium, player a takes the best possible action given the action of player b and v/v.
