ECO101H1 Lecture Notes - Lecture 10: Oligopoly, Nash Equilibrium, Marginal Cost
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Oligopolistic market has only a small group of sellers. Key feature is the tension between cooperation and self-interest. Auto manufacturers (north america: few firms (gm, chrysler, ford, face downward-sloping demand curves. Should gm raise price of its compact cars: mutual interdependence. If compete with one another, industry profits may fall to competitive level (zero economic profits) If form a successful cartel, industry profits may equal monopoly profits. Insights: most oligopolists compete with one another, cartels are illegal, cartels if formed, may breakdown for incentive reasons (text: the conflict between cooperation and self-interest) Oligopolists may try to collude (form of cartel) rather than to compete with one another: forming a cartel ( price-fixing ) is illegal, economic analysis draws attention to incentives (which may cause a cartel to break down) Numerical example: purpose: what output would a profit-maximizing monopoly produce in special case where. Duopoly an oligopoly with only members. Total revenue of the two producers equals their total profit.
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