ECN 104 Chapter Notes - Chapter 17: Nash Equilibrium, Oligopoly, Root Mean Square

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Chapter 17- Oligopoly
Markets With Only A Few Sellers
-Because an oligopolistic market has only a small groups of sellers, a key feature of
oligopoly is the tension between cooperation and self interest
Competition, Monopolies, and Cartels
Collusion: An agreement among firms in a market about quantities to produce or prices
to charge
Cartel: A group of firms acting in unison
The Equilibrium For an Oligopoly
Nash Equilibrium: A situation in which economic actors interacting with one another
each choose their best strategy given the strategies that all other actors have chosen
-When firms in a oligopoly individually choose production to maximize profit they
produce a quantity of output greater than the level produced by monopoly and less than
the level produced by completion. The oligopoly price is less than the monopoly price
but greater than the competitive price (which equals marginal cost)
-The oligopoly price is less than the monopoly price, greater than the competitive price
How the Size of an Oligopoly Affects the Market Outcome
-The larger the number of sellers, the less concerned each seller is about its own impact
on the market price
-As the number of sellers in a n oligopoly grows larger, an oligopolistic market starts to
look like a competitive market
Summary
-Oligopolists maximize their total profits by forming a cartel and acting like a monopolist.
Yet, if oligopolists make decisions about production levels individual, the result is a
greater quantity and a lower price than under the monopoly outcome. The larger the
number of firms in the oligopoly, the closer the unity and price will be to the levels that
would prevail under perfect competition
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