ECO101H1 Lecture 20: Oligopoly and Monopolistic Competition Cont.

28 views3 pages
5 Apr 2017
School
Department
Course
elizabethkandelaki and 40134 others unlocked
ECO101H1 Full Course Notes
98
ECO101H1 Full Course Notes
Verified Note
98 documents

Document Summary

Oligopolist: if collude to form cartel (illegal), industry may earn monopolistic profits, if one firm has mr > mc, may cheat (by increasing output) and cartel may break down. Point may be made using prisoner"s dilemma (game theory) Duopolists form cartel and agree to divide market output (hence profits) 50:50. Payoff matrix: if each produces one-half of monopoly output. Each has profit of 20: if each produces two-thirds of monopoly output ( cheats ) Each has profit of 17: if one produces one-half of monopoly output and one produces two-thirds of monopoly output. Strategies: produce one-half monopoly output, produce two-thirds monopoly output. Outcome: a and b each produce monopoly, cartel breaks down, in repeat game, punishment strategies may lead to more co-operation. Each firm is optimizing, given the strategy of the other firm. Therefore, neither firm has an incentive to change its strategy.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related textbook solutions

Related Documents

Related Questions