EC260 Lecture Notes - Lecture 10: Limited Government, Substitute Good, Best Response
Document Summary
Relatively few firms, usually less than 10. The products firms offer can be either differentiated or homogenous. Many different strategic variables are modeled: no single oligopoly model. Your actions affect the profits of your rivals, and vice versa. You and another firm sell differentiated products. The effect of a price reduction/increase on the quantity demanded of your product depends upon whether your rivals respond by cutting/raising their prices too. Strategic interdependence: you aren"t in complete control of your own destiny. Few firms in the market serving many customers. Each firm believes rivals will match/follow price reductions, but won"t match price increases. Firms believe rivals match price cuts, but not price increases. Firms operating in a sweezy oligopoly maximize profit by producing where mrs = mc. The kinked-shaped marginal revenue curve implies that there exists a range over which changes in mc will not impact the profit-maximizing level of output.
