ECON102 Lecture Notes - Nash Equilibrium, Monopoly Profit, Oligopoly

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Eva Lau

Document Summary

Duopoly: an oligopoly market with two firms. @ prices above the kink, a small price increase brings a big decrease in quantity if a firm raises its prices, other firms will not change their prices the firm which raised its price will lose market share. 15 oligopoly the small firms behave like firms in a perfect competition page 2 of 6. 2 outcome: choices made my players determine the outcome. Dilemma: both players have the dilemma to deny and possibly get only 2 or 10 years depending on the other player. Each player can put himself in the other player"s place and figure out that there is a best strategy for each firms in an oligopoly are in a similar situation. Nash equilibrium: if the other firm cheats, it is better to cheat than comply; and if the other firm complies, it is still better to cheat, so each firm will choose to cheat.