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Chapter 15

ECON 1000 Chapter Notes - Chapter 15: Strategic Dominance, Monopoly Profit, Game Theory


Department
Economics
Course Code
ECON 1000
Professor
Andrea Podhorsky
Chapter
15

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Chapter 15 – only know pg. 344-350
Oligopoly is a model of market structure where dew firms compete and strategically
interact
oFirm considers effects of its actions on behavior and actions of others on its own
profit
oNatural and legal barriers prevent the entry of new firms
Little market structure and has few firms
Monopolistic completion is a market structure
oMany buyer
oMany sellers
oDifferentiated products
oNo barriers to entry
Game theory is a tool for studying strategic behavior that takes into account the
expected behavior of others and the mutual recognition of interdependence
There are four features:
oRules – setting of the game
oStrategies – decisions of the players
oPayoffs – profits and losses of players given the strategies
oOutcomes
Nash equilibrium
oIf a player makes a rational choice in pursuit of his own best interest, he chooses
the action that is best for him, given any action taken by the other player
oIf both players are rational and choose their actions in this way, the outcome is
an equilibrium called Nash equilibrium
oNo player has the incentive to deviate/change
Dominant strategy – whatever the other player does, this will not impact my strategy
because my strategy will give me the best outcome
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