CAS EC 101 Lecture Notes - Lecture 21: Solution Concept, Nash Equilibrium, Military Science

• School: Boston University
• Department: Economics
• Course: CAS EC 101
• Professor: Michael Manove

Document Summary

Competitive firms are least likely to engage in costly rent-seeking in order to protect their market positions. In perfectly competitive markets (like the market for corn), firms do not compete with other firms on an individual basis. If farmer jane grows corn, she couldn"t care less about what farmer jones is doing. Farmer jane looks up the price of corn in the newspaper online and she bases her business strategy on price. Farmer jane does not interact strategically with her competitors. Monopolies have no strategic interaction with competitors (unless there are potential entrants, they have no competitors) But suppose, two fancy hotels are located across the street from one another (a duopoly) Must be concerned with the business strategy of the other hotel. Guess their business strategy and react to it in a sensible way. The owner of each hotel will be interested in the business strategy of the other bc customers could easily switch between hotels.