econ chapter 15

when no one firm has a monopoly but producers nonetheless realize that they can affect market price

• monopolistic
• oligopoly

• common market structure
• an industry with only a small number of producers

a producer in an oligopoly market

• an oligopoly consisting of only two firms
• each firm produces less/ limited to keep prices higher

• collusion
• non-cooperative behavior
• quantity competition
• price competition

sellers cooperate to raise each others profits

• strongest form of collusion
• an agreement by several producers to obey output restrictions in order to increase thier jint profits

ignoring the effects of their actions on each other's profits

• when firms are restricted in how much they can produce it is easier for them to avoid excessice comeptition and to divvy up the market thereby pricing above marginal
• cournot model

• bertrand model
• when firms produce perfect substitutes and have sufficient capacity to satisfy demand when price is equal to marginal cost then each firm will be compelled to engage in competition by undercutting it rivals price until the price reaches marginal cost

when the decision of two or more firms significantly affect others profit

the study of behavior in situations of interdependence

reward recieved

• shows how the payoff to each of the participants in a two player game depends on the actions of both
• helps analyze interdependence

to study firms behavior when there is interdependence between their payoff

when each firm in interdependence has an incentive to cheat but both are worse off if both cheat

an action when it is a players best action regardless of the action taken by the other player

• non-cooperative equilibrium
• the result when each player in a game chooses the action that maximizes his payoff given the actions of the other players ignoring the effects of this action on the payoffs received by those other players

sacrificing short-run profit to influence future behavior

playing cooperatively at first then doing whatever the other player did in the previous period

when firms limit production and raise prices in a way that raises each others profits even though they have not made any formal agreement

• large numbers of firms
• complex products and pricing scheme
• bargaining power of buyers
• conflicts of interest among firms

when collusion breaks down

an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry

product differentiation

one firm sets its price first and other firms then follow

using advertising and other means to try to increase their sale

price

price leadership

an action that is always the best regardless of the other players action

illustrates how an oligopolist that faces unique changes in its marginal cost within a certain range may decrease not to adjust its output and price in order to avoid a breakdown in tacit collusion