- By
**toni** - Follow User

- 1453 Views
- Uploaded on

Download Presentation
## PowerPoint Slideshow about ' Oligopoly' - toni

**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.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

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

Y’s price

D

C

£12m for Y

£5m for X

£1.80

£8m each

OLIGOPOLY

- Non-collusive oligopoly: game theory
- simple dominant strategy games

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

OLIGOPOLY

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

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

OLIGOPOLY

- Non-collusive oligopoly: game theory
-simple dominant strategy games

- the prisoners’ dilemma
- Nash equilibrium

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

OLIGOPOLY

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

- The Cournot model of duopoly

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

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

- The Cournot model of duopoly

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

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

- The Cournot model of duopoly

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

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

- The Cournot model of duopoly

QBe

RB

QAe

The Cournot model of duopolyEquilibrium 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

Download Presentation

Connecting to Server..