CAS EC 101 Lecture Notes - Lecture 18: Nash Equilibrium, Oligopoly, Perfect Competition

• School: Boston University
• Department: Economics
• Course: CAS EC 101
• Professor: Todd Idson

Document Summary

Must (cid:272)onside(cid:409) ho(cid:462) othe(cid:409)s mi(cid:311)ht (cid:409)espond to the a(cid:272)tion he takes. P(cid:409)i(cid:272)e is dete(cid:409)mined on the ma(cid:409)ket (cid:271)(cid:468) the demand. Collude and (cid:310)o(cid:409)m a (cid:272)a(cid:409)tel: a(cid:272)t as a monopol(cid:468) Gi(cid:461)en the st(cid:409)ate(cid:311)ies that all the othe(cid:409) a(cid:272)to(cid:409)s ha(cid:461)e (cid:272)hosen. Do not end up (cid:409)ea(cid:272)hin(cid:311) the monopol(cid:468) out(cid:272)ome and ma(cid:467)imizin(cid:311) thei(cid:409) joint p(cid:409)o(cid:310)it. Ea(cid:272)h is tempted to (cid:409)aise p(cid:409)odu(cid:272)tion and (cid:272)aptu(cid:409)e a la(cid:409)(cid:311)e(cid:409) sha(cid:409)e o(cid:310) the ma(cid:409)ket. When (cid:310)i(cid:409)ms in an oli(cid:311)opol(cid:468) indi(cid:461)iduall(cid:468) (cid:272)hoose p(cid:409)odu(cid:272)tion to ma(cid:467)imize p(cid:409)o(cid:310)it. Less than the le(cid:461)el p(cid:409)odu(cid:272)ed (cid:271)(cid:468) (cid:272)ompetition. Di(cid:310)(cid:310)i(cid:272)ult to (cid:409)ea(cid:272)h and en(cid:310)o(cid:409)(cid:272)e an a(cid:311)(cid:409)eement as the size o(cid:310) the (cid:311)(cid:409)oup in(cid:272)(cid:409)eases. I(cid:310) mo(cid:409)e selle(cid:409)s do not (cid:310)o(cid:409)m a (cid:272)a(cid:409)tel, ea(cid:272)h (cid:310)i(cid:409)m has to take into a(cid:272)(cid:272)ount: The size o(cid:310) an oli(cid:311)opol(cid:468) a(cid:310)(cid:310)e(cid:272)ts the ma(cid:409)ket out(cid:272)ome. Illust(cid:409)ates (cid:462)h(cid:468) (cid:272)oope(cid:409)ation is di(cid:310)(cid:310)i(cid:272)ult to maintain e(cid:461)en (cid:462)hen it is mutuall(cid:468) (cid:271)ene(cid:310)i(cid:272)ial. Key idea: coope(cid:409)ation (cid:271)et(cid:462)een the t(cid:462)o p(cid:409)isone(cid:409)s is di(cid:310)(cid:310)i(cid:272)ult to maintain (cid:271)e(cid:272)ause (cid:272)oope(cid:409)ation is indi(cid:461)iduall(cid:468) i(cid:409)(cid:409)ational. In t(cid:409)(cid:468)in(cid:311) to (cid:409)ea(cid:272)h the monopol(cid:468) out(cid:272)ome.