Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Micro_Module 64-28
Document related concepts
Transcript
Module Micro: 28 Econ: 64 Introduction to Oligopoly KRUGMAN'S MICROECONOMICS for AP* Margaret Ray and David Anderson What you will learn in this Module: • Why oligopolists have an incentive to act in ways that reduce their combined profit. • Why oligopolies can benefit from collusion. Understanding Oligopoly • “Few” producers • Remember HHI • Interdependence Collusion and Competition • Oligopoly firms can increase their profits by colluding to restrict output or raise price. • Maintaining collusive agreements is difficult because there is an incentive to cheat • Collusion is illegal Price versus Quantity Competition • Bertrand • Price competition • Competitive outcome • Cournot • Quantity competition • Economic profits Price versus Quantity Competition • Joseph Bertrand (1822-1900) showed that when firms are selling an identical product, oligopolists will repeatedly lower price to undercut the competition. This process ends at the perfectly competitive outcome where P=MC. • Augustin Cournot (1801-1877) focused on quantity competition, rather than price competition. Again assuming a homogenous product, duopoly firms choose output to maximize profit, given the output of the rival firm. There exists an equilibrium level of output that allows each firm to earn profits that are below monopoly-level profits, but are above normal profits. Table 64.1 Demand Schedule for Lysine Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers
