ECO101H1 Chapter Notes - Chapter 14: Nash Equilibrium, Marginal Cost, Bertran De Born Lo Filhs
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ECO101H1 Full Course Notes
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These firms know that their decision about how to produce will affect the market price. Imperfect competition: a situation in which firms compete but also possess market power which enables them to affect market prices. Duopoly industry with only two producing firms. Collusion: firms will work together to limit products to maximize profits. Strongest form of collusion is a cartel, an agreement among several producers to obey output restrictions in order to increase their joint profits. Chooses quantities, market price adjustments to sell all the units, firms choose capacity: split the monopoly, not a nash equilibrium. Bertrand chooses prices, all consumers purchase from the lowest price firm, no capacity constraint. Bertrand paradox in a market where firms compete on price without capacity constraints, it only takes 2 firms to get marginal cost pricing. Resolving the paradox: capacity constraints, product differentiation some prefer certain type of products.
