ECON 1050 Chapter Notes - Chapter 15: Royal Academy Of Dramatic Art, Nash Equilibrium, Normal-Form Game
7 Dec 2015
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Document Summary
Natural or legal barriers prevent the entry of new firms. Either natural or legal barriers to entry can create oligopoly. In part (a), there is a natural duopoly a market with two firms. In part (b), 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 and oligopoly market has only a few firms, they are independent 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. Game theory is a tool for studying strategic behaviour, which is behavior that takes into account the expected behavior of others and the mutual recognition of interdependence.
