AP Micro 17 by Savannah Julius https://padlet.com/8juliuss/apmicro17 Oligopoly and Game Theory en-us 2018-03-22 01:20:23 UTC 2018-03-23 17:12:04 UTC hello@padlet.com https://padlet-assets.s3.amazonaws.com/icons/Playcontrol.png Quizlet 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244809553 https://quizlet.com/_4miqk3]]> 2018-03-22 01:21:24 UTC https://padlet.com/8juliuss/apmicro17/wish/244809553 Oligopoly 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244809592 a few interdependent firms]]> 2018-03-22 01:21:42 UTC https://padlet.com/8juliuss/apmicro17/wish/244809592 game theory 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244809639 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]]> 2018-03-22 01:21:57 UTC https://padlet.com/8juliuss/apmicro17/wish/244809639 key features 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244809750
  • tension between cooperation and self-interest
  • interdependence
    • ]]>     2018-03-22 01:22:33 UTC https://padlet.com/8juliuss/apmicro17/wish/244809750     Duopoly 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244809826 oligopoly with just two firms
    • most common in this chapter especially with game theory
    ]]>     2018-03-22 01:23:01 UTC https://padlet.com/8juliuss/apmicro17/wish/244809826     Competition, Monopolies, Cartels 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244809918 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

    ]]>     2018-03-22 01:23:35 UTC https://padlet.com/8juliuss/apmicro17/wish/244809918     Cooperation 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244810145 collusion
    cartels
    - a few firms acting like a monopoly]]>     2018-03-22 01:25:04 UTC https://padlet.com/8juliuss/apmicro17/wish/244810145     Equilibrium for an Oligopoly 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244810216 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]]>     2018-03-22 01:25:27 UTC https://padlet.com/8juliuss/apmicro17/wish/244810216     How Size of Oligopoly Affects Market Outcome 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244810475 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

    ]]>     2018-03-22 01:27:08 UTC https://padlet.com/8juliuss/apmicro17/wish/244810475     effects of producing one more good 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244810572 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!]]>     2018-03-22 01:27:46 UTC https://padlet.com/8juliuss/apmicro17/wish/244810572     Prisoners' Dilemma 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244816986 dominant and dominated strategies

    Nash equilibrium]]>     2018-03-22 02:10:02 UTC https://padlet.com/8juliuss/apmicro17/wish/244816986     Oligopolies as a Prisoners' Dilemma 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244817103 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]]>     2018-03-22 02:10:32 UTC https://padlet.com/8juliuss/apmicro17/wish/244817103     Other Examples of Prisoners' Dilemma 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244817273 arms race: build new weapons or disarm
    common resources: drilling into oil pools]]>     2018-03-22 02:11:36 UTC https://padlet.com/8juliuss/apmicro17/wish/244817273     Prisoners' Dilemma and Welfare of Society 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244817402 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
    ]]>     2018-03-22 02:12:19 UTC https://padlet.com/8juliuss/apmicro17/wish/244817402     Why People Sometimes Cooperate 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244817754 cooperation is easier to enforce in repeated games (there are now consequences for future)
    • tit-for-tat
    ]]>     2018-03-22 02:14:23 UTC https://padlet.com/8juliuss/apmicro17/wish/244817754     to move allocation of resources closer to social optimum, policymakers should induce competition 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244818002 2018-03-22 02:15:38 UTC https://padlet.com/8juliuss/apmicro17/wish/244818002 Restraint of Trade and the Antitrust Laws 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244818049 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]]>     2018-03-22 02:15:55 UTC https://padlet.com/8juliuss/apmicro17/wish/244818049     Controversies over Antitrust Policy 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244818357 2018-03-22 02:17:57 UTC https://padlet.com/8juliuss/apmicro17/wish/244818357 resale price maintenance = fair trade 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244818394 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)
    ]]>     2018-03-22 02:18:06 UTC https://padlet.com/8juliuss/apmicro17/wish/244818394     predatory pricing 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244818546 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!
    ]]>     2018-03-22 02:19:14 UTC https://padlet.com/8juliuss/apmicro17/wish/244818546     tying 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244818617 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!!!


    ]]>     2018-03-22 02:19:49 UTC https://padlet.com/8juliuss/apmicro17/wish/244818617     characteristics of oligopoly 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244818783 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]]>     2018-03-22 02:21:01 UTC https://padlet.com/8juliuss/apmicro17/wish/244818783     concentration ratio 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244819345 4-5 companies that have significant market share* (about 70-75%) in which they probably have oligopoly power

     *national market share]]>     2018-03-22 02:24:44 UTC https://padlet.com/8juliuss/apmicro17/wish/244819345     Theory 1: Cartel 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244819895
  • 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

    • ]]>     2018-03-22 02:28:08 UTC https://padlet.com/8juliuss/apmicro17/wish/244819895     Theory 2: Kinked Demand Curve 8juliuss https://padlet.com/8juliuss/apmicro17/wish/244819915
  • 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
    • ]]>     2018-03-22 02:28:16 UTC https://padlet.com/8juliuss/apmicro17/wish/244819915