ECO100Y5 Chapter Notes - Chapter 11: Oligopoly, Marginal Revenue, Nash Equilibrium
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ECO100Y5 Full Course Notes
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Oligopoly- an industry that contains two or more firms, at least one of which produces a significant portion of the industry"s total output. Complicated because the firm"s marginal revenue depends on what its rivals do. Strategic behaviour- behaviour designed to take account of the reactions of one"s rivals to one"s own behaviour. Firms can either cooperate (or collude) in an attempt to maximize joint profits or they can compete in an effort to maximize their individual profits. When thinking about how firm behaviour leads to market outcomes, distinguish between: Non-cooperative outcome- an industry outcome reached when firms maximize their own profit without cooperating with other firms. If every industry cuts its price or raises output, they will be worse off as a group and may all be worse off individually. Game theory- the theory that studies decision making in situations in which one player anticipates the reactions of other players to its own actions.
