ECO101H1 Lecture Notes - Oligopoly, Blackberry Limited, Demand Curve

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20 Jan 2011
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Www. notesolution. com: duopolist - (for simplicity assume there are only two firms in the industry); - must allocate market share e. g. 50:50; then each firm produces q=15. - by fixing prices (at monopoly level, if joint profits are maximized). - fixing price is illegal (so arrangements cannot be enforced by the courts: incentive to cheat: cartel may break down. - if firm does not cheat, each firm will produce q=15; market quantity=30, p=60, so each firm will earn profit =900; - if one firm cheats and increases its q=20; then market quantity=15+20=35; p decreases to 50; So the firm that cheats get a profit of 1,000 and the firm that does not cheat get a profit of 750. - as a result of cheating, one firm increases its profit and the other one decreases; the cartel breaks down. Insight: incentive to cheat? (how do firms know when to cheat?) - if firm increases q from 15 to 20,

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