How do oligopolies behave?

1. to analyse features of oligopolies How do oligopolies behave? Interdependence and Uncertainty Should they co-operate or compete?

2. to analyse features of oligopolies

3. to analyse features of oligopolies • Rules: • 4 companies compete over 4 rounds • Your unit cost is £5 • Your productive capacity is 2500 units per round. • Each company makes one decision per round – your output. • Tutor collects you decisions and sets the price for that round. • You fill in the table

4. to analyse features of oligopolies

5. to analyse features of oligopolies Example: Output decisions – Company A = 1000; Company B = 500; Company C = 500; Company D = 1000 Total output = 3000 So…tutor sets price at £8 Now, in pencil, fill in the table for Company A in round 1

6. to analyse features of oligopolies Company A – round 1

7. to analyse features of oligopolies Company B – round 1

8. to analyse features of oligopolies Now – your turn • Rules: • 4 companies compete over 4 rounds • Your unit cost is £5 • Your productive capacity is 2500 units per round. • Each company makes one decision per round – your output. • Tutor collects you decisions and sets the price for that round. • You fill in the table

9. to analyse features of oligopolies How do oligopolies behave? Is there a ‘best’ strategy? Is there a ‘best’ collective strategy? Is there a ‘best’ individual strategy? In what ways are the four companies interdependent?

10. to analyse features of oligopolies How do oligopolies behave? Is there a ‘best’ strategy? Is there a ‘best’ collective strategy? Is there a ‘best’ individual strategy? What uncertainty exists? – How does it affect company behaviour? - How could the uncertainty be reduced?

11. to analyse features of oligopolies How do oligopolies behave? Interdependence and Uncertainty Should they co-operate or compete? Lack of price competition can be the result – one possible explanation is…

12. to analyse features of oligopolies How do oligopolies behave? Collusion • Cartels [formal agreements] illegal • Tacit agreements – price leadership which leads to parallel pricing

13. to analyse features of oligopolies How do oligopolies behave? Interdependence and Uncertainty • Summarise what you think these words mean. • Use the output game to provide an example of these words • What strategies are available to the firms in this four-firm market? • Which strategy do you think is the best? • How realistic do you think that this game is?