Economics 1021A/B Lecture Notes - Lecture 15: Oligopoly, Exclusive Dealing, Nash Equilibrium

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

What is oligopoly: natural or legal barriers prevent the entry of new firms, a small number of firms compete, barriers to entry, small number of firms. Either natural or legal barriers to entry can create oligopoly. There is a natural duopoly- a market with two firms. There is a natural oligopoly market with three firms. A legal oligopoly might arise even where the demand and costs leave room for a larger number of firms. Because an oligopoly market has only a few firms, they are interdependent and face a temptation to cooperate. Interdependence: with a small number of firms, each firm"s profit depends on every firm"s actions. Temptation to cooperate: firms in oligopoly face the temptation to form a cartel. A cartel is a group of firms acting together to limit output, raise price, and increase profit. Strategic behavior considers the expect behavior of others and the mutual recognition of interdependence.