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ECO131120.docx

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Department
Economics
Course
ECO100Y1
Professor
James Pesando
Semester
Fall

Description
Oligopolist (cont.) 1. If collude to form cartel (illegal) industry may earn monopoly profits 2. If one firm has MR>MC may cheat (by increasing output) and cartel may  break down. 3. Firms might collude One firm might cheat Both firms might cheat Duopolists form cartel and agree to divide market output 50:50 Payoff matrix 1. IF each produces one half of monopoly  Each has profit of 20 output 2. If each produces two thirds of  Each has profit of17 monopoly output (cheats) 3. If one produces one half of monopoly  Firm produce one half profit 15 output and one produces two thirds of  Firm produce two thirds profit 22 monopoly out put SEE FIGURE 2 Prisoners’ dilemma Rational agents (profit maximizing) + uncertainty as to action of opponent Result: Inferior outcome (lower profits) Public policy: competition policy Prevent oligopolists from colluding, typically, via price fixing Monopolistic Competition Monopolistic Comp Perfect Comp Ex: family restaurant Ex: wheat farmer 1. Many firms Many firms 2. Differentiated products Identical products ­ Downward sloping demand curve  ­ Perfectly elastic demand curve  MR
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