CHAPTER 16 – OLIGOPOLY ("FEW SELLERS")

1. The first example used is that of producing water (with zero marginal cost) when first a competitive market, then a monopoly firm produces it, and finally when a duopoly produces the water.

2. A cartel is an extension of the duopoly case, in which a group of firms agrees ("colludes") in setting the price and output to produce, with the objective of jointly earning and sharing monopoly profits. (There can be no greater profit than this!)

3. Game Theory represents the conflict between joint interest and separate interest seen in cartels and in other forms of oligopoly. Because in oligopoly, the chief characteristic is concern about your opponents’ actions and their effects on you. There are few enough of you to be conscious of the other fellow(s).

4. Always keep in mind the agreement (to produce the monopoly profit). The decision is whether to comply or to cheat on the agreement. These terms can be applied to most situations.

5. Dominant Strategy: The option that will be selected regardless of the play (option) pursued by one’s opponent.

6. Dominant Strategy Equilibrium: The outcome resulting from the combination of dominant strategies of the (two) players, shown by their intersection in the contingency table.

TERMS for this chapter:
Oligopoly
Duopoly
Cartel
Collusion
Prisoners’ Dilemma
Nash Equilibrium
Dominant Strategy
Dominant Strategy Equilibrium
Tit-for-Tat Strategy

Class Notes | Clint Johnson |  Economics & Finance | Departments & Majors
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