BUS 207 Lecture Notes - Lecture 7: Economic Equilibrium, Substitute Good, Perfect Competition
10 Apr 2016
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Document Summary
A market structure in which there are a few, large irms compeing in a market where some barriers to entry exist. Barriers lead to fewness, which leads to mutual interdependence. Firms know that their acions will afect their rivals and vice-versa. If one irm increases its output rate, it will lower the market price, causing its rivals to react. If one irm cuts price, then it will reduce the irm demand available for its rivals, causing them to react. Firms must think strategically they must determine how their acions will afect rivals and how their rivals will respond. Two irms, idenical in size and costs, must simultaneously decide how much of an idenical product to produce (quanity compeiion) Result: total industry output is less than perfect compeiion, but more than monopoly, so the price is between the monopoly and compeiive prices. A model of a market structure with two irms that compete by choosing output or capacity.
