EC120 Lecture Notes - Lecture 5: Nash Equilibrium, Root Mean Square, Price Discrimination
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EC120 Full Course Notes
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Oligopoly: a market structure in which only a few sellers offer similar or identical products. A rm"s decision"s about p or q can affect other rms and cause them to react. The rm will consider these reactions when making a decision. Game theory: the study of how people behave in strategic situations. Collusion: an agreement among rms in a market about the quantities and price. Cartel: a group of rms acting in unison. Both rms would be better off if both stick to the cartel agreement. But each rm has incentive to renege on the agreement. Lesson: it"s dif cult for oligopolies to form cartels and honour their agreements. Nash equilibrium: a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen. When rms in an oligopoly individually choose production to maximize pro t: Oligopoly q is greater than monopoly q but smaller than competitive q.
