Oligopoly

Question 1

What is oligopoly?

Answer 1

Few sellers who create similar or identical goods. ex. Canadian banks

Question 2

What is interesting in the way that an oligopoly behaves?

Answer 2

The firm’s decisions about P or Q can affect other firms and cause them to react. The firm will consider these reactions when making decisions. Which is why the Tit for Tat, Prisoner’s Dilemma and Nash Equilibrium are very important(game theory)

Question 3

What is an oligopoly?

Answer 3

An oligopoly with two firms

Question 4

Define:

• Collusion

- Cartel

Answer 4

Collusion is the act of firms working together to set a price or quantity. They have an agreement essentially.

Cartel: is the noun of colluding. A group of firms acting in unison

Question 5

Define Nash equilibrium

Answer 5

a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen.

Both firms will choose the best outcome for themselves. essentially both will renege

Question 6

When firms in an oligopoly individually choose production to maximize profit,

Answer 6

monopoly Q< Oligopoly Q< Competitive Q

competitive P< Oligopoly P< Competitive P

Question 7

For an oligopoly, increasing output has two effects on a firm’s profit

Answer 7

Output effect: If P>MC, selling more output raises profit

Price effect: Raising production increases market Q, which reduces market price and reduces profit on all units sold

If output effect>price effect, firm increases production

if output effect< price effect, the firm reduces production

Question 8

Game theory:
Dominant strategy
Prisoner’s dilemma

And what are ad wars?

What about prisoner’s dilemma and common resources?

Answer 8

• A strategy that is best for the player regardless of the other player’s strategy
• a “game between two captured criminals that illustrates why cooperation is difficult when it is mutually beneficial/
• Two firms spend millions on TV ads to steal business form eachother. Each firm’s ad cancels out the effects of the other and both firms’ prodfits fall by the cost of ads
• All would be better off if everyone conserved common resources, but each person’s dominant strategy is overusing the resources.

Question 9

What is the Tit for Tat?(this is when firms may cooperate)

Answer 9

Whatever your rival does one round(whether renege or cooperate) you do in the following round

This may lead to cooperation:
If you rival reneges in one round, you renege all subsequent rounds

Question 10

Antitrust laws-Policy makers use antitrust laws to regulate oligopolist behavior. The proper scope of these laws is subject of ongoing controversy.

Answer 10

Canada’s competition ACt codifies and reinforces policy whereby practices that restrain trade among competitors si against public interest