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Canada (161,516)
Economics (818)
ECON 2310 (47)
Chapter 19

Chapter 19 Intermediate Micro Notes

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ECON 2310
Johanna Goertz

Chapter 19 EconomicsOligopoly191 OLIGOPOLY AND THE GAME THEORY Because each firm is concerned with only its own profit and not its rivals it may be tempted to lower price to expand sales If both firms do this the resulting competition lowers sales Game theory looks for pricequantities choices at which each firm is doing as well as it can given the prices charged or quantities produced by rivals In Nash Equilibrium each firm is choosing a best response to the actions of its rivals192 THE BERTRAND MODEL PRICE COMPETITION WITH HOMOGENEOUS PRODUCTSBertrand Model of Oligopoly If both firms charge the same price each firm will sell to half of the market at that price In Bertrand model temptation to undercut is so tempting that prices are driven all the way down to MC Same as perfectly competitive outcome193 COURNOT QUANTIFY CONSUMPTION In many settings a firm can only sell a limited quantity at any point in time May have limited inventory or face constraints
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