1 / 18

Oligopoly

Oligopoly. OLIGOPOLY. Key features of oligopoly barriers to entry interdependence of firms incentives to compete. OLIGOPOLY. Non-collusive oligopoly: game theory. Profits for firms A and B at different prices. X’s price. £2.00. £1.80. B. A. £5m for Y £12m for X. £2.00. £10m each.

toni
Download Presentation

Oligopoly

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Oligopoly

  2. OLIGOPOLY • Key features of oligopoly • barriers to entry • interdependence of firms • incentives to compete

  3. OLIGOPOLY • Non-collusive oligopoly: game theory

  4. Profits for firms A and B at different prices X’s price £2.00 £1.80 B A £5m for Y £12m for X £2.00 £10m each Y’s price D C £12m for Y £5m for X £1.80 £8m each

  5. OLIGOPOLY • Non-collusive oligopoly: game theory • simple dominant strategy games

  6. Profits for firms A and B at different prices X’s price £2.00 £1.80 B A £5m for Y £12m for X £2.00 £10m each Y’s price D C £12m for Y £5m for X £1.80 £8m each

  7. OLIGOPOLY • Non-collusive oligopoly: game theory • alternative strategies: maximax and maximin • simple dominant strategy games • the prisoners’ dilemma

  8. The prisoners' dilemma Amanda's alternatives Not confess Confess B A Nigel gets 10 years Amanda gets 3 months Not confess Each gets 1 year Nigel's alternatives D C Nigel gets 3 months Amanda gets 10 years Each gets 3 years Confess

  9. OLIGOPOLY • Non-collusive oligopoly: game theory -simple dominant strategy games • the prisoners’ dilemma • Nash equilibrium

  10. A decision tree Boeing –£10m Airbus –£10m (1) 500 seater Airbus decides B1 400 seater Boeing +£30m Airbus +£50m (2) 500 seater Boeing +£50m Airbus +£30m (3) 400 seater 500 seater B2 400 seater Airbus decides Boeing –£10m Airbus –£10m (4) Boeing decides A

  11. OLIGOPOLY • Non-collusive oligopoly: assumptions about rivals’ behaviour • The Cournot model of duopoly • assumption that rival will produce a given quantity

  12. MCA DM DA1 QB1 The Cournot model of duopoly £ Firm A believes that firm B will produce QB1. O Quantity (a) Firm A’s profit-maximising position

  13. OLIGOPOLY • Non-collusive oligopoly: assumptions about rivals’ behaviour • The Cournot model of duopoly • assumption that rival will produce a given quantity • profit-maximising price and output for firm A

  14. PA1 MRA1 QA1 The Cournot model of duopoly £ MCA Firm A’s profit-maximising output and price are QA1 and PA. DM DA1 O QB1 Quantity (a) Firm A’s profit-maximising position

  15. OLIGOPOLY • Non-collusive oligopoly: assumptions about rivals’ behaviour • The Cournot model of duopoly • assumption that rival will produce a given quantity • profit-maximising price and output for firm A • reaction functions of firms A and B

  16. Firm A’s reaction function for each assumed output of B RA Firm B’s reaction function for each assumed output of A x QB1 RB QA1 The Cournot model of duopoly £ MCA Firm B’s output PA1 DM DA1 MRA1 O QA1 O QB1 Firm A’s output Quantity (b) The two firms’ reaction functions (a) Firm A’s profit-maximising position

  17. OLIGOPOLY • Non-collusive oligopoly: assumptions about rivals’ behaviour • The Cournot model of duopoly • assumption that rival will produce a given quantity • profit-maximising price and output for firm A • reaction functions of firms A and B • Cournot equilibrium

  18. e QBe RB QAe The Cournot model of duopoly Equilibrium at point e, where the two reaction functions cross £ RA MCA Firm B’s output PA1 x QB1 DM DA1 MRA1 QA1 O QA1 O QB1 Firm A’s output Quantity (b) The two firms’ reaction functions (a) Firm A’s profit-maximising position

More Related