Chapter+16+Oligopoly+JBS

=**Chapter 16 Oligopoly JBS **=



 * oligopoly**: a market structure in which only a few sellers offer similar or identical products


 * monopolistic competition**: a market structure in which many firms sell products that are similar but not identical


 * collusion**: an agreement among firms in a market about quantities to produce or prices to charge


 * cartel**: a group of firms acting in unison


 * Nash equilibrium:** a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen


 * game theory**: the study of how people behave in strategic situations


 * prisoners' dilemma**: a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial


 * dominant strategy**: a strategy that is best for a player in a game regardless of the strategies chosen by the other players 

Oligopoly



 * Imperfectly competitive market!
 * Market with only few sellers, offering similar goods
 * Concentration ratio :% of total output in market supplied by 4 largest firms

Tension between Cooperation and Self-Interest; It is best for them to "cooperate" and act like a monopolist, but because they care only about their profit, no one wants to act as a monopoly.

There comes DUOpoly: market with TWO sellers Collusion: agreement among firms over production Cartel : group of firms acting together

YET! cartels are rarely formed because equal division never happens + antitrust law If they pursue self-interest... Total Quantity > Monopoly Quantity, which means Lower price.

Ex)The duopolists won't try to go more and reach competitive allocation, because they believe that if they increase more, they would lose profit. More members in a cartel, less chance that it would make compromises.

Output Effect : one more unit, increase profit Price Effect : increase total amount sold, lower price of water, and profit If Output Effect > Price Effect, PROFIT! Larger number of sellers, Lower magnitude of price effect Extreme? increase production as long as OP > MC. More like COMPETITIVE MARKET.

**Game Theory **
Game Theory goes to the movie, //A Beautiful Mind.//
 * The study of how people make decisions in situations where attaining their goals depends on their interactions with othersl in economics, the study of the decisions of firms in industries where the profits of each firm depend on its interatctions with other firms.
 * Payoff Matrix: A table tat shows the payoffs that each firm earns from every combination of strategies by the firms
 * Dominant Strategy: A strategy that is the best for a firm, no matter what strategies other firms use (No matter what other choose)
 * Nash Equilibrium: A situation where each firm chooses the best strategy, given the strategies chosen by other firms. (Depend on Other)
 * Example: Nash Equilibrium (Prisoner's Dilemma)



<span style="font-family: Tahoma,Geneva,sans-serif;"> Conclusion:
<span style="font-family: Tahoma,Geneva,sans-serif;">It is better to fail in oligopoly, because it means its closer to optimal. Sometimes cooperation actually happens if penalties are given LOL media type="youtube" key="kVsVUSPb0fg" height="344" width="425"

<span style="color: #ff0000; font-family: Tahoma,Geneva,sans-serif;">Bibliography **<span style="font-family: Tahoma,Geneva,sans-serif;"> http://img.banjig.net/d/bb/user_uploads/353694/oligopoly1_1a886b35.jpg