ECO101H1 Lecture Notes - Monopoly Price, Blackberry Limited, Demand Curve
140 views4 pages
For unlimited access to Class Notes, a Class+ subscription is required.
Topic 10 – Oligopoly
(Week ten Nov 16th - Nov 24th)
1. Oligopoly – Key Features
2. Monopoly profits for Oligopolists: Cartel
3. Firm cheats; Carte Breaks down;
4. Prisoner’s Dilemma – Pay-off Matrix
5. Application – Ban on TV Advertising
Opening Example: Research In Motion
RIM plans to introduce a new kind of tablet called PlayBook.
Questions: -- What price should it set?
-- What features should it have (i.e. size, color);
-- What date to introduce?
These answers depend upon what RIM believes Apple Inc. will do with its iPad, in response.
RIM is an oligopolist. Its strategic decisions reflect anticipated response of its rivals.
Oligopoly – Key Features:
a) No single theory about Oligopoly;
b) Economic profits can range from nil to monopoly level;
c) Mutual Interdependence among firms is central to analysis:
-- Oligopolistic firms within an industry are aware that the behavior of one firm will influence others.
Examples – Monopoly VS Oligopolists
Assume (for simplicity): MC=0=ATC (e.g. town wells)
Market Demand Schedule
Total Revenue (=profit)
-- Profit Maximizing: MR=MC=0
P=60, Q=30; profit = 1800.
-- Monopolist maximizes profit.
(* we know that atP=60,Q=30 MR=0 because at that point the total
revenue stops increasing.)