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Published byPercival Day Modified over 9 years ago
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Oligopoly Pricing and Output Various models Common thread--interdependence assumption--how will competitors react to price and output changes At least 2 firms--at least 1 with a significant market share Pure or differentiated
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Models of Oligopoly Cournot model Kinked demand curve Cartel model--collusion Price leadership-barometric or dominant firm
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Cournot Model (1838) Simple duopoly Each firm is a profit maximizer Each firm assumes that regardless of own output, other firm’s output will not change A observes B producing Q B and assumes that regardless of Q A, Q B = 0 Mathematical example
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Kinked Demand Curve Sweezy Model (1939) Price cuts will be followed to protect market share Price increases will not be followed Demand curve is more elastic for price increases than price decreases, thus a kink in the demand curve and a gap in MR Graphical model
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Cartel Model Model of collusion; e.g.., OPEC, NCAA Set price and output like a monopolist Methods of allocating production –Based on past sales, production capacity, regional distribution, or behave like a multi- plant monopolist Ease of formation –Few firms, similar product, similar costs Mathematical example
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Price Leadership One firm is price leader--price searcher Other firms follow--price takers (P = MR F ) Followers produce all they want at set price Leader produces to satisfy market demand Q L = Q T - Q F Mathematical example
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