ECO 120 Lecture Notes - Lecture 26: Nash Equilibrium, Oligopoly
13 Nov 2016
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Document Summary
Oligopoly - a market structure in which only a few sellers offer similar or identical products. Game theory - study of how people behave in strategic situations. Measuring market concentration: concentration ratio - the percentage of the market"s total output supplied by its four large. Higher the ratio, the lower the competition. Oligopoly - market structure with high concentration ratios: collusion - an agreement among firms in a market about quantities to produce or prices to. Both firms would be better off if both stick to the cartel agreement. Each firm has incentive to renege on the agreement. Lesson: it is difficult for oligopoly firms to form cartels and honor their agreem. Equilibrium for oligopoly: nash equilibrium - a situation in which economic agents interacting with one another each. Comparison of market outcomes: when firms in an oligopoly individually choose production to maximize profit. Oligopoly q is greater than monopoly q, but smaller than competitive q.
