MGT437H5 Lecture Notes - Lecture 6: Mathematical Folklore, Oligopoly, Marginal Cost
Document Summary
In this chapter the authors examine the timing of decisions and the importance of commitment. They explore the concept of a focal point and whether firms can use that concept to avoid the ravages of cutthroat competition. Finally, they consider how the structure of an industry emerges from the competitive interplay of its member firms. The term microdynamics is used to refer to the unfolding of competition, over time, among a small number of firms. This contrasts with macrodynamics, a term used to describe the evolution of overall market structure. The addition of time dimension affects strategic options, by focusing on the following aspects of microdynamics: (1) the strategic benefits of commitment (2) the. The folk theorem implies that cooperative pricing behavior is a possible outcome in an oligopolistic industry, even if all firms act unilaterally. There can be many other outcomes, however, and thus there is no guarantee that cooperative pricing will emerge.
