ECON 101 Lecture Notes - Lecture 16: Nash Equilibrium, Imperfect Competition, Perfect Competition

49 views5 pages

azurewasp442

3 Apr 2017

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

sangriahare462 and 5 others unlocked

ECON 101 Full Course Notes

Verified Note

30 documents

Document Summary

Econ 101 oligopoly and game theory l1. Imperfect competition: competition among firms who have some market power. Decisions made by each firm has an impact on the market. Each firm must consider the actions of the other firms in the industry. Each firm makes decisions of output and price without consulting eachother (make decisions independently in order to compete with eachother: unlike in perfect competition, choices impact eachother. Cooperative (monopoly doesn"t have this there is only one firm in monopoly) Price or quantity setting (this is typically illegal) Collusion: two or more firms acting together to set prices or quantity rather than competing. Firms acting together as if a monopoly: how it"s like a monopoly: Monopoly profits are the highest profits possible in an industry. Oligopoly: would like to act like a monopoly, industry w/ small number of producers, has barriers to exit but not as strong as those for monopolies.

Related Questions

1. Which of the following statements about oligopolies is not correct?

a.		Oligopolistic firms always charge the monopoly price.
b.		Oligopolistic firms are interdependent in a way that firms in perfect competition are not.
c.		An oligopolistic market has only a few sellers.
d.		The actions of any one seller can have a large impact on the profits of all other sellers.

2. Which is true of an oligopoly market that reaches a Nash equilibrium?

a.		The firms will not have behaved as profit maximizers.
b.		A firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
c.		A firm will not take into account the strategies of competing firms.
d.		The market price will be different for each firm.

3. In game theory, what is a dominant strategy?

a.		the best strategy for a player to follow, regardless of the what strategies other players use
b.		a strategy that makes every player better off
c.		a strategy that must appear in every game
d.		the best strategy for a player to follow only if other players are cooperative

4. Which of the following situations produces the largest profits for oligopolists?

a.		The firms reach a Nash equilibrium.
b.		The firms combine to produce the monopoly output level.
c.		The firms set prices equal to marginal cost.
d.		The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

1. Which of the following statements about oligopolies is not correct?

a.		Oligopolistic firms always charge the monopoly price.
b.		Oligopolistic firms are interdependent in a way that firms in perfect competition are not.
c.		An oligopolistic market has only a few sellers.
d.		The actions of any one seller can have a large impact on the profits of all other sellers.

2. Which is true of an oligopoly market that reaches a Nash equilibrium?

a.		The firms will not have behaved as profit maximizers.
b.		A firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
c.		A firm will not take into account the strategies of competing firms.
d.		The market price will be different for each firm.

3. In game theory, what is a dominant strategy?

a.		the best strategy for a player to follow, regardless of the what strategies other players use
b.		a strategy that makes every player better off
c.		a strategy that must appear in every game
d.		the best strategy for a player to follow only if other players are cooperative

4. Which of the following situations produces the largest profits for oligopolists?

a.		The firms reach a Nash equilibrium.
b.		The firms combine to produce the monopoly output level.
c.		The firms set prices equal to marginal cost.
d.		The firms produce a quantity of output that lies between the competitive outcome and the monopoly outcome.

Consider the following market game: An incumbent firm, called firm 3, is already in an industry. Two potential entrants, called firms 1 and 2, can each enter the industry by paying the entry cost of 10. First, firm 1 decides whether to enter or not. Then, after observing firm 1's choice, firm 2 decides whether to enter or not. Then, after observing firm 1's choice, firm 2 decides whether to enter or not. Every firm, including firm 3, observes the choices of firms 1 and 2. After this, all of the firms in the industry (including firm 3) compete in a Cournot oligopoly, where they simultaneously and independently select quantities. The price is determined by the inverse demand curve p = 12 â Q, where Q is the total quantity produced in the industry. Assume that the firms produce at no cost in this Cournot game. Thus, if firm i is in the industry and produces qi, then it earns a gross profit of (12 â Q)qi in the Cournot phase. (Remember that firms 1 and 2 have to pay the fixed cost of 10 to enter).

(a) Compute the subgame perfect equilibrium of this market game. Do so by first finding the equilibrium quantities and profit in the Cournot subgames. Show your answer by designating optimal action on the tree and writing the complete subgame perfect equilibrium strategy profile. [Hint: In an n-firm Cournot oligopoly with demand p = 12 â Q and 0 costs, the Nash equilibrium entails each firm producing the quantity q = 12/(n + 1).]

(b) In the subgame perfect equilibrium, which firms (if any) enter the industry?

silverantelope83

ECON 101 Lecture Notes - Lecture 16: Nash Equilibrium, Imperfect Competition, Perfect Competition

ECON 101 Full Course Notes

Document Summary

Get access

Related Documents

ECON 101 Lecture 10: Economics101-Lecture 10- Caldwell

ECON 101 Lecture Notes - Lecture 21: Nash Equilibrium, Strategic Dominance, Repeated Game

ECON 101 Lecture 15: 101 game theory notes

Related Questions