EC120 Chapter Notes - Chapter 17: Nash Equilibrium, Predatory Pricing, Game Theory
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EC120 Full Course Notes
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Oligopoly: a market structure in which only a few sellers offer similar or identical products. A rm"s decisions about p or q can affect other rms and cause them to react. The rm will consider these reactions when making decisions. Game theory: the study of how people behave in strategic situations. Both rms would be better of if both stick to the cartel agreement. But each rm has incentive to go back on the agreement. Lesson: it is dif cult for oligopoly rms to form cartels and honour their agreements because they have incentive (higher pro ts) to deviate from the agreement. Nash equilibrium: a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen. Our duopoly example has a nash equilibrium in which each rm produces q = 40. Given that rogers produces q = 40, telus" best move is to produce q = 40.
