EC260 Lecture Notes - Lecture 8: Bertrand Competition, Maxima And Minima, Best Response
Document Summary
High barriers to entry of new firms exist. Nonprice competition in the form of advertising or product differentiation. Tight interdependence between managers of rival firms in an oligopoly b/c there"s such small group of players in the market must consider reactions of rival firms to pricing decisions. Oligopolies exist b/c of high barriers to entry for new firms, special gov. privileges (resource rights), or economies of scale: cooperative behaviour. Cooperation increases profit, decreases uncertainty, and raises barriers to entry for others wishing to join market. Difficult to maintain cooperative behaviour since strong incentives to cheat. Illegal in canada and us competition act of 1889 (canada) prohibits certain criminal offences (e. g. price fixing, bid rigging, predatory pricing) and reviews potential mergers and potentially non-competitive business practices. Organization of petroleum exporting countries (opec) operates as cartel. Cartel"s possible when product is homogenous (e. g. oil, diamonds)
