Oligoploy and game theory Flashcards
What are some examples of oligopolies?
Uk supermarkets
Airlines
What are the characteristics of an oligopoly?
- Few firms dominate (high concentration ratio)
- Differentiated goods (price makers)
- Interdependence ( high rigidity)
- High barriers of entry/exit
- Non price competition (brand, ads)
- Profit maximising is not sole objective
What are the oligopoly behaviour models?
- Cournot model (Q)
- Betrand model (price)
- Cartel
What is the Cournot model of oligopoly behaviour?
Quantity competition. Firms decide q based on competitors output
What is the Bertrand model of oligopoly behaviour?
Price competition. Firms compete on price, no firms can profitably deviate
What is the Cartel model of oligopoly behaviour?
Explicit or tatic agreements to restrict production (barriers of entry)
What curve should be used for an oligopoly?
Kinked demand curve
What does the kinked demand curve show?
That there is price elasticity at the beginning then inelasticity after kink of demand
2 things that firms don’t want/ need to do in oligoply market?
Change price
- Want to - as they will loose market share
- need to - as long as they are in MR kink
What are strategic behaviours in imperfect competition
Firms consider costs, revenue from more units, price effects and competitiors responses - non cooperative game
What are examples of game theory
- Prisoner’s dilemma
- Standard games
- Enrry games
What is nash equilibium
Both plays made the best reponse, no regrest
What does nash equilibrium do
Last in the long term as when theres high profit it incentives firms to join which will make them want to collude and form cartels to create barriers
