# data[].attributes.body
https://quizlet.com/_4miqk3

# data[].attributes.body
a few interdependent firms

# data[].attributes.body
1. explains predicament of decision-making for oligopolies
2. illustrates what each company will receive depending on mutual price decision
3. if one company is high and the other is low, the low price gets the bigger market share

# data[].attributes.body
tension between cooperation and self-interest

interdependence

# data[].attributes.body
oligopoly with just two firms

most common in this chapter especially with game theory

# data[].attributes.body
if perfectly competitive...

production decisions drive P to MC

price would reflect cost of production

if monopoly...

produce at MR = MC but up at D (P>MC)

produce at lower quantity than socially efficient

# data[].attributes.body
collusion
cartels
- a few firms acting like a monopoly

# data[].attributes.body
difficult to form cartels because of self interests
- and overproduction may decrease price

Nash Equilibrium: situation where everyone in oligopoly chooses their best strategy given the strategies that all the other firms chose
- gives ZERO incentives to change

# data[].attributes.headline
How Size of Oligopoly Affects Market Outcome

# data[].attributes.subject
How Size of Oligopoly Affects Market Outcome

# data[].attributes.body
more firms, more likely to form cartel --> until cartel is too large and it's difficult to agree

As oligopoly grows in magnitude, its firms become price takers

looks more like competitive market

# data[].attributes.body
1. output effect: selling one more unit will increase profit since P>MC
2. price effect: increasing production will increase the total amount sold, which will actually lower price (and then lower profits)
--> as stated before, overproduction can cause decrease in profits for oligopoly!

# data[].attributes.body
dominant and dominated strategies

Nash equilibrium

# data[].attributes.body
regardless of what other firms are doing, doing the same strategy twice is the dominant strategy

i.e. OPEC: agreed to decrease production and raise prices, but some firms cheated and took home more profit by increasing production

# data[].attributes.body
arms race: build new weapons or disarm
common resources: drilling into oil pools

# data[].attributes.headline
Prisoners' Dilemma and Welfare of Society

# data[].attributes.subject
Prisoners' Dilemma and Welfare of Society

# data[].attributes.body
society does NOT want cooperation

cooperation means the oligopoly acts more like a monopoly

higher prices

low quantity produced

not cooperating means oligopoly is more competition

higher production

lower prices

# data[].attributes.body
cooperation is easier to enforce in repeated games (there are now consequences for future)

tit-for-tat

# data[].attributes.headline
to move allocation of resources closer to social optimum, policymakers should induce competition

# data[].attributes.subject
to move allocation of resources closer to social optimum, policymakers should induce competition

# data[].attributes.headline
Restraint of Trade and the Antitrust Laws

# data[].attributes.subject
Restraint of Trade and the Antitrust Laws

# data[].attributes.body
courts refuse to enforce agreements among competitors
- don't want to endorse monopolisitc action
- prevent mergers and prevent oligopolists from acting together

Sherman: contracts can be see as criminal conspiracy
Clayton: if someone is damaged by the restraint of trade, they can sue the bad guys for 3x the amount lose

# data[].attributes.body
the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices. If a reseller refuses to maintain prices, the manufacturer may stop doing business with it.

defenders of resale price maintenance:
1. it's not supposed to decrease competition
2. it has a goal of good service
- (backfire: free riders gain off that good service sometimes)

# data[].attributes.body
the pricing of goods or services at such a low level that other suppliers cannot compete and are forced to leave the market

price would have to be lower than cost!

# data[].attributes.body
An often illegal arrangement where, in order to buy one product, the consumer must purchase another product that exists in a separate market

considered a type of price discrimination
- add willingness to pay from each product together
buy 2 for the price of 1!!!! but the two items are completely different!!!

# data[].attributes.body
1. few dominant sellers
2. products can be similar or differentiated
3. interdependence is a key feature--few competitors so each firm has a significant impact on the industry as a whole
4. significant barriers to entry
5. price maker (still has to be conscientious of effects on competitors though)
6. can achieve long run economic profits
7. P>MC=MR

# data[].attributes.body
4-5 companies that have significant market share* (about 70-75%) in which they probably have oligopoly power

*national market share

# data[].attributes.body
undifferentiated products

few firms, each firm has significant share of market

increases market power

act more like monopoly

illegal in US

difficult to maintain cartels

example = OPEC

# data[].attributes.body
differentiated product

occurs because of competition between other firms

reflects interdependence

The market demand curve that each oligopolist faces is determined by the output and price decisions of the other firms in the oligopoly

elastic when production is higher than P=MR=MC

inelastic when production is lower than P=MR=MC