1. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Non-Cooperative Oligopoly  “Few” Firms  Product Types Identical Chapter 6 Heterogeneous Chapter 7  No Entry  Firms pick price or quantity only

2. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Non-Cooperative Game Theory  2 or more players maximizing individual payoffs  Each firm is aware of the other’s decision and the way those decisions affect proft.  Nash Equilibrium Cournot Equilibrium: Nash in quantity choice Bertrand Equilibrium: Nash in price choice

3. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Cournot Equilibrium  No entry  Homogeneous products  Single period  Demand Example: Q = 1000-1000p  Cost of firm I =.28*q i (i = 1,2)

4. Figure 6.1 This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. MC = $.28 Market Demand: Q = 1000-1000P Residual Demand: q 1 = 1000-1000P - 240 Output Residual Marginal Revenue 240 4807601000 $1 P

5. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Finding Firm 1’s best response Reaction functions are also called: Best Response Functions

6. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Finding Firm 2’s best response

7. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Graphing the Reaction Functions

8. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Calculating Cournot Equilibrium

9. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Cournot Vs. Monopoly  For our example Demand: Q = 1000-1000p Cost =.28*q

10. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Cournot Vs. Competition  For our example Demand: Q = 1000-1000P Supply: P =.28

11. Figure 6.3 This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Profit Possibility Frontier Stackleberg Cournot Efficient Point, Bertrand 64.857.6 32.4

12. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Cournot with n-firms  Firm’s output = 720/(n+1)  Industry output = 720n/(n+1)  Price = 1/n +.28  Profit of firm = 5.184/(n+1) 2

13. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Bertrand Equilibrium  For our example Demand: Q = 1000-1000p Cost =.28*q  What is demand for firm 1?

14. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Stackleberg Leader-Follower

15. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Stackleberg Calculations  Maximize Firm 1’s profit given that firm 2 will follow the rule: q 2 =360 – q 1 /2.

16. Multi-period Game Complexities This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill.  Simultaneous move games  Single period  Super games  Finitely repeated games  Sub-game perfection

17. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Cournot: One Period vs Supergame Firm 1 Firm 2 $57.6 $72.00$64.80 $54.00 240180 240 180 $57.6 $54.00$64.80 $72.00

18. Experimental Evidence  Plott (1982) Cournot, Competitive Equilibrium, and joint profit maximum predict price well Which is better depends on exact setup  Lave (1962) 2 period, 2 person, multi-period prisoner’s dilemma, no formal communication: joint profit maximum best predictor.  Holt (1985) Tri-opoly, repeated 25 times: Outcome between Cournot and Joint profit maximum Tri-opoly, one-shot only: Cournot Outcome closest This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill.