ECON 001B Chapter Notes - Chapter 17: Nash Equilibrium, Moe Williams, Oligopoly
Document Summary
17 oligopoly (w/ small intro to game theory*) Game theory: study of how people behave in strategic situations. Like in the raid and mercenary example (you didn"t type it down, but kinda paid attention. Oligopoly: a market structure where a few sellers produce similar or identical. Oligopolies can be studied in a game theoretic context* Two main forces at work in their interactions products. They can maximize total profit by jointly behaving as a monopolist* Deviating from the collusion outcome is in each firm"s self-interest. Eg: two suppliers of water to a town, alice and bob. A monopolist would choose highest tr: q=60, p=60, profit=tr=3600. Bob produces @ collusion outcome, alice cheats. Now qa is 40, qb = 30 => q=70 => p=50. Profit of alice = 40 x 50 = 2,000. Profit of bob = 30 x 50 =1,500. Alice gets more money, bob gets less, total profit is less (3,500), but alice wins.
