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Oligopoly
Features of Oligopoly
An industry which is dominated by a few firms.

a five firm concentration ratio of more than 50% (this means they have more than 50%
of the market share)

Interdependence of Firms, firms will be effected by how other firms set price and
output

Differentiated Products,…

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This assumes that firms seek to maximise profits

If they increase price, then they will lose a large share of the market because they
become uncompetitive compared to other firms, therefore demand is elastic for price
increases.

If firms cut price then they would gain a big increase in Market…

Page 3

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The price and output in oligopoly will reflect the price and output of a monopoly. The
Quantity QM will be split between the firms in the cartel.


Economics of Game Theory
the study of strategic interaction where one player's decision depends on what
the other player does
What the opponent…

Page 4

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If P2 chooses left P!1will choose UP

If p2 chooses right P1 will choose UP

Therefore UP is a dominant strategy for P1
P2 will always choose right no matter what P1 does

The unique equilibrium is (up, right). This is despite the fact that (down, left) is pareto
superior.…

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"stable": neither player would wish to change his action given the action of the other
player. This is a NASH equilibrium
Prisoners dilemma

Player B
Confess Deny
Confess -3,-3 0,-6
Player A
Deny -6,0 -1,-1

Comments

davidsalter

This is a 4 page summary of oligopoly which looks at what it is, collusion, kinked demand curve and game theory. A useful set of notes.

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