ECO 304K Lecture Notes - Lecture 15: Breakfast Cereal, Product Differentiation, Oligopoly
8 Nov 2016
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Oligopoly - a few sellers, with barriers to further entry. Many markets are oligopolies: cars, ford, gm, toyota, honda. Airlines, supermarkets, breakfast cereal, cell phone providers, ride-share app, lysine. Differentiation makes firm"s products less substitutable, decreases elasticity of demand. Horizontal: appeal to different segments of consumers: grape vs. Collusion- agreeing not to undercut each other in price. Cartel - group of firms that act jointly as a monopolist and split the profit. Each of n firms, sets the monopoly price pm and sells 1/n of qm. Remember p-c/p = 1/ ed: illegal to monopolize trade or lessen competition , sherman act (1890), clayton act (1914, to see the second reason, we"ll use game theory, the study of strategic interactions. If samsang chooses high, happle wants to undercut. If s chooses undercut, h wants to undercut. From the point of view of the firms, this is inefficient. Best choice regardless of what other firm dues.
