wk 4 - Oligopolies

Question 1

What is an Oligopoly

Answer 1

interdependence, product differentiation, high barriers to entry, uncertainty, and price setters

Question 2

Define Cartel

Answer 2

A combination of firms that act as a single firm
= A shared monopoly

Question 3

What is a collusive oligopoly

Answer 3

Small number of firms in market
Coordinate actions to maximise joint profits

Question 4

What is the full cartel outcome

Answer 4

The P and Q where joint profit is maximised

Question 5

What are the 2 reasons a cartel may not achieve Full Cartel Outcome

Answer 5

1) When cartel holds price above marginal cost, there’s an incentive to cheat
2) New firms are attracted to the industry - dont comply with cartel

Question 6

How do cartels promote success

Answer 6

Limiting cheating (through punishments)
Barriers to entry (Limit entry)

Question 7

Define best response

Answer 7

The strategy that provides the most favorable outcome

Question 8

What is Nash equilibrium

Answer 8

Where the market is stable
Each firm chooses the strategy to prof max given the strategies of other firms in market
a.k.a Cournot equilibrium