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Chapter 17

Chapter 17.docx

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CAS EC 101

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Chapter 17: oligopolies • Oligopoly: few sellers, similar identical products • Game theory: study of how people behave in strategic situations - Markets with only a few sellers  Key feature is tension b/t cooperation and self interest o Competition, monopolies, and cartels  If market were perfectly competitive: production decisions of each firm would drive price=marginal cost  If market were monopoly: produce quantity at max price, price exceeds marginal cost  If market were oligopoly • Collusion: agreement among firms in a market about quantities to produce or prices to charge, firms acting are cartel • Cartel must agree on amount to produce and amount produced by each producer  The equilibrium for an oligopoly • If duopolists individually pursue own self-interest when deciding how much to produce, they produce a total quantity greater than the monopoly quantity, earning a profit less than monopoly profit • Nash equilibrium: situation in which economic actors interacting with one another each choose their best strategies given the strategies that all other actors have chosen • When firms in an oligopoly individually choose production to maximize profit, they produce a quantity of output greater than level produced my monopoly abs less than l
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