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AP Economics Mr. Bernstein Module 64: Introduction to Oligopoly December 10, 2014
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AP Economics Mr. Bernstein Oligopolies Few producers HHI or other measures of concentration Interdependence One firm’s actions impact the other Firms could collude to raise prices and collectively act as a monopoly Trusts of the late 1800’s But each member has an incentive to marginally cheat OPEC is case study Reminder – collusion is illegal in the US 2
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AP Economics Mr. Bernstein The Duopoly Model Joseph Bertrand (1822-1900) If products are identical, oligopolists repeatedly lower price to undercut the competition until P=MC, as in Perfect Competition Augustin Cournot (1801-1877) If products are identical, oligopolists choose output to maximize profit, given output of rival. Equilibrium is reached with positive economic profits, though below monopoly profits. 3
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