Please answer this question. (Environmental Economics) University Level.
hanul4
a.pdf
Le ct ur e� 3
D ue
�q ui z� as �a �p ri nt ed
�h ar d� co py
D om
in an t� Fi rm
�a nd
�C om
pe tit iv e� Fr in ge
Ca rt el s
Vi lla sͲ Bo
as ͲL ec tu re �3
1
V ill
as -B
oa s
– Le
ct ur
e 2
E E
P 14
2 P
ag e
2
M ar ke t�s tr uc tu re �4 :�d
om in an t�f ir m �& �a �c om
pe tit iv e�
fr in ge .
– 䇾 Fr in ge 䇿 fir m s� ac t�a
s� pr ic e� ta ke rs .
– Ex am
pl es :�f ri ng e� fir m s� ar e� go v䇻 t�o
w ne
d� (h os pi ta ls ),�
ve ry �s m al l�( oi l�p ro du
ci ng
�c ou
nt ri es �n ot �in
�O PE C) .
– D om
in an t�f ir m �fa ce s� a� re si d u a l�d e m a n d �c u rv e af te r�
ot he
rs 䇻 pr od
uc tio
n. – D om
in an t�f ir m �m
ax im
iz es �p ro fit s� on
�th e� re si du
al �
de m an d� cu rv e.
– Fr in ge �fi rm
s� pr od
uc e� un
til �M
C= P, �w he
re �P �is �s et � b y� th e�
do m in an t�f ir m .
Be fo re �m
ar ke t�4
• A dd
in g� de
m an ds
• A dd
in g� su pp
lie s
Vi lla sͲ Bo
as ͲL ec tu re �2
P ag
e 3
V ill
as -B
oa s
– Le
ct ur
e 2
E E
P 14
2 P
ag e
4
Tw o� de
m an d� cu rv es .
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27 28
29 30
Q
P
P= 25
-Q P=
15 -.
5Q
V ill
as -B
oa s
– Le
ct ur
e 2
E E
P 14
2 P
ag e
5
A gg re ga te �d em
an d� is �th
e� ho
ri zo nt al �s um
�o f�t he
�tw o�
cu rv es .
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27 28
29 30
Q
P
P= 25
-Q P=
15 -.
5Q S
um
V ill
as -B
oa s
– Le
ct ur
e 2
E E
P 14
2 P
ag e
6
Ca lc ul at in g� ag gr eg at e� de
m an d.
• D 1: �P �= �2 5� – Q
•R ew
ri te �in
�te rm
s� of �Q :
• Q 1 =� 25
�– P
•S um
: •
Q TO
T =� 55
�– 3P
•R ew
ri te �in
�te rm
s� of �P :
• P� =� 18
.3 3Ͳ .3 3Q
•B ew
ar e� of �n eg at iv e� de
m an d� le ve ls .
• P� =� 25
�– Q ��� fo r� P>
15 ��
• =� 18
.3 3� Ͳ. 33
Q �fo
r� Pd
15
• D 2: �P �= �1 5� Ͳ. 5Q
• Q 2 =� 30
�– 2P
V ill
as -B
oa s
– Le
ct ur
e 2
E E
P 14
2 P
ag e
7
M R� w ith
�a �k in ke d� de
m an d� cu rv e.
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27 28
29 30
Q
P
S um
M R
V ill
as -B
oa s
– Le
ct ur
e 2
E E
P 14
2 P
ag e
8
A gg re ga tin
g� m ar gi na l�c os t�c ur ve s.
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27 28
29 30
Q
MC(Q)
M C
(Q )=
.4 Q
M C
(Q )=
Q M
C (Q
)= .2
86 Q
V ill
as -B
oa s
– Le
ct ur
e 2
E E
P 14
2 P
ag e
9
Ca lc ul at in g� ag gr eg at e� su pp
ly .
• M C1
:�M C� =� .4 Q
•R ew
ri te �in
�te rm
s� of �Q :
• Q �= �2 .5 M C
•S um
: •
Q �= �3 .5 M C
•R ew
ri te �in
�te rm
s� of �M
C: •
M C� =� .2 8Q
• M C2
:�M C� =� Q
• Q �= �M
C
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 0
M ar ke t�s tr uc tu re �4 :�d
om in an t�f ir m �& �a �c om
pe tit iv e�
fr in ge �o f�N
�fi rm
s.
– “F ri ng e” �fi rm
s� ac t�a
s� pr ic e� ta ke rs .�
– D om
in an t�f ir m �Ͳ w hy �is �it �d om
in an t?
• do
m in an t�f ir m �m
ay �h av e� lo w er �c os ts ,�
• su pe
ri or �p ro du
ct
– Ca n� th e� do
m in an t�f ir m �e xe rc is e� m ar ke t�p
ow er �
fo re ve r?
• Sa m e� an sw
er �a s� m on
op ol y� fo re ve r…
� • W ha t�i f�f ri ng e� fir m s� en te r?
• W he
n� do
es �d om
in an t�f ir m �c on
tr ol �fr in ge �fi rm
s?
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 1
M ar ke t�s tr uc tu re �4 :�d
om in an t�f ir m �& �a �c om
pe tit iv e�
fr in ge �o f�N
�fi rm
s.
– W ou
ld �d om
in an t�f ir m �w an t�t o� pr od
uc e� at �th
e� m on
op ol y� ou
tp ut ?� �N o� (b ec au se �fr in ge �w ou
ld �re
sp on
d� by �p ro du
ci ng
�a nd
�th en
�m or e� qu
an tit y� an d� lo w er �p ri ce �
th an
�if �w er e� al on
e) – D om
in an t�f ir m :�S in ce �I� ca nn
ot �s to p� th e� fr in ge �fi rm
s, �le t�
th em
�s el l�a s� m uc h� as �th
ey �w an t�a
t� th e �p ri ce �I� se t.
– Ex ce pt �a t�t he
�v er y� hi gh
�p ri ce s� I�h av e� so m e� de
m an d� le ft �
af te r� th e� fr in ge �p ro du
ce s.
– I�f ac e� a� re si d u a l�d e m a n d �c u rv e ,�i .e .,� I�h av e� m ar ke t�
po w er .�I �a m �a �m
on op
ol is t�o
n� th e� re si du
al �d em
an d!
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 2
M ar ke t�s tr uc tu re �3 :�d
om in an t�f ir m �& �a �c om
pe tit iv e�
fr in ge �p ri ci ng
�s tr at eg ie s:
– D om
in an t�f ir m �m
ax im
iz es �p ro fit s� on
�th e� re si du
al �
de m an d� cu rv e� (D em
an d� le ft �o ve r�a
ft er �fr in ge �re
ac ts �
to �p ri ce �b y� pr od
uc in g) .�Q
_r es id =� Q (p )Ͳ q_
fr in ge (p )
• O nc e� w e� ge t�r es id ua l�� de
m an d� w e� ar e� in �th
e� m on
op ol is t�
ca se .
– Fr in ge �fi rm
s� pr od
uc e� un
til �M
C= P, �w he
re �P �is �s et �b y�
th e� do
m in an t�f ir m .�I f�p
ri ce �b el ow
�m in �A C� th en
� fr in ge �d oe
s� no
t�p ro du
ce
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 3
M ar ke t�s tr uc tu re �3 :�d
om in an t�f ir m �& �N �fi rm
s� co m pe
tit iv e� fr in ge
$ $
S F (p
)= N
f q f
(p )
D (p
)
A C
f
M C
f
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y M
ar ke
t
Q Q
Þ Þ
1. S
up pl
y of
e ac
h f f
ir m
: p=
M C
f if
p >
m in
A c f
= Þ
3. If
p < Þ
Fr in
ge
ha s
ne ga
tiv e
pr of
its s
o sh
ut s
do w
n
2. If
p =Þ
th en
pr
of its
=0
4. A
dd in
g up
h or
iz on
ta lly
a ll
fr in
ge s
up pl
ie s
gi ve
s to
ta l f
ri ng
e su
pp ly
, S F
(p )=
N f q f
(p )
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 4
M ar ke t�s tr uc tu re �3 :�R
es id ua l�D
em an d� D d( p) =D
(p )Ͳ S F (p )
$ $
S F (p
) D (p
)
A C
f
M C
f
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y M
ar ke
t
Q Q
Þ Þ
D d(
p)
D d(
p) =
D (p
)- S F
(p )
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 5
M ar ke t�s tr uc tu re �3 :�R
es id ua l�D
em an d� an d� M ar gi na l�
Re ve nu
e
$ $
S F (p
) D (p
)
A C
f
M C
f
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y M
ar ke
t
Q Q
Þ Þ
D d(
p)
M R
d( p)
M ar
gi na
l r ev
en ue
o f
R es
id ua
l D em
an d
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 6
M ar ke t�s tr uc tu re �3 :�P ro fit �m
ax im
iz in g� do
m in an t�f ir m �
M C d =M
R d
$ $
S F (p
) D (p
)
A C
f
M C
f
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y M
ar ke
t
Q Q
Þ Þ
D d(
p)
M R
d( p)
M C
d
Q d
Q
Q F
P q f Q
F
W ha
t i f M
C d
?
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 7
M ar ke t�s tr uc tu re �3 :�
Pr of its ��( fr in ge �in �b lu e; �d om
in an t�f ir m �in
�re d)
$ $
S F (p
) D (p
)
A C
f
M C
f
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y M
ar ke
t
Q Q
Þ Þ
D d(
p)
M R
d( p)
M C
d
Q d
Q
Q F
P Q
d A
C d
q f Q
F
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 8
W he
n� do
es �th
e� do
m in an t�f ir m �c on
tr ol �th
e� N �fi rm
s� in �th
e� fr in ge ?
$ $
S F (p
) D (p
)
A C
f
M C
f
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y
Q Q
Þ Þ
D d(
p)
M R
d( p)
W ith
v er
y lo
w M
C d
Su ch
th at
p is
b el
ow Þ
, th
en q
f= 0
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �1 9
W ha t�h
ap pe
ns �w he
n� N f in cr ea se s, �t ha t�i s, �w he
n� th er e� in �e nt ry �in to �th
e� fr in ge ?
$ $
S F (p
) D (p
)
A C
f
M C
f
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y
Q Q
Þ Þ
D d(
p)
M R
d( p)
T he
n S F
(p ) s
hi ft
s to
th e
ri gh
t, an
d re
si du
al
de m
an d
D d(
p) c
on tr
ac ts
do
w n
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �2 0
W ha t�i f�f re e� en
tr y� of �fr in ge �fi rm
s� co ul d� ha pp
en �(r em
em be
r� fr in ge �fi rm
s� ar e�
ea rn in g� po
si tiv e� pr of its �in
�o ur �e xa m pl e) ?
$ $
D (p
)
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y
Q Q
Þ Þ
D d(
p)
M R
d( p)
S F (p
)
Vi lla sͲ Bo
as ͲL ec tu re �3
Pa ge �2 1
Fr ee
�e nt ry �o f�f ri ng e� fir m s� an d� tw
o� ki nd
s� of �M
C d �?
$ $
D (p
)
D (p
)
Fr in
ge F
ir m
a nd
F ri
ng e’
s to
ta l s
up pl
y
Q Q
Þ Þ
D d(
p)
M R
d( p)
S F (p
)
M C
d
M C
* dD om
in an
t f ir
m
do m
in at
es in
th is
ca
se . F
ri ng
e do
es n
ot
pr od
uc e
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �2 2
Ca rt el s
• M or e� lik el y� to �o cc ur �w he
n� on
ly �a �fe w �fi rm
s� =>
�in �a n� ol ig op
ol y
• Th er e� ar e� tw
o� ki nd
s� of �o lig op
ol ie s� w e� w ill �s tu dy :
– C o o p e ra ti v e �o li g o p o li e s in �w hi ch �a �s m al l�n um
be r� of �fi rm
s� co or di na te �
th ei r� ef fo rt s� to �m
ax im
iz e� jo in t�c ar te l�p ro fit s� ex am
pl e� O PE C–
to da y’ s�
le ct ur e.
– N o n Ͳc o o p e ra ti v e �o li g o p o li e s� in �w hi ch �th
e� fir m s� ac t�a
s� ri va ls �– ne xt �
co up
le �o f�l ec tu re s.
• If� th ey �d ec id e� in de
pe nd
en tly
�to �b eh
av e� as �if �th
ey �h av e� a� ca rt el �
ar ra ng em
en t�t hi s� is �c al le d� ta ci t�c o ll u si o n
Vi lla sͲ Bo
as ͲL ec tu re �3
E E
P 14
2 Pa ge �2 3
Co llu si on
�E xp er im
en t
• W e� ar e� no
w �3 �fi rm
s� pa rt �o f�t he
�E EP
�c ar te l�a nd
�e ac h� of �u s� ha s� to �
ch oo
se �b et w ee n� tw
o� op
tio ns �X �a nd
�Y .
• H er e� ar e� th e� pa yo ff s� gi ve n� ou
r� ch oi ce s:
# w
ho c
ho se
X 0
1 2
3 X
0 20
40 60
Y 25
61 65
- E
E P
p ro
fit s
75 10
1 14
5 18
0
Vi lla sͲ Bo
as ͲL ec tu re �3
E E
P 14
2 Pa ge �2 4
Co llu si on
�E xp er im
en t
• H ow
�w ou
ld �y ou
�c ho
os e� ?
• Is �a �v er ba l�a gr ee m en t�t o� al l�c ho
os e� X� en
ou gh
�a m on
g� ca rt el �
m em
be rs ?
• D oe
s� th e� ca rt el �m
ax im
iz e� jo in t�p
ro fit s� by �c ho
os in g�
in de
pe nd
en tly
? •
H ow
�c ou
ld �th
e� ca rt el �re
ac h� ag re em
en t�t ha t�a
ll� ch oo
se �X ?
• W ha t�h
ap pe
ns �if �n um
be r� pl ay er s� in cr ea se s� fr om
�3 ,�i s� it� ea si er �o r�
ha rd er �to
�s us ta in �X �fo
r� al l?
# w
ho c
ho se
X 0
1 2
3 X
0 20
40 60
Y 25
61 65
- E
E P
p ro
fit s
75 10
1 14
5 18
0
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �2 5
Ca rt el s
• Ca
rt el �m
em be
rs �b en
ef it� fr om
�c oo
rd in at in g� th ei r�
de ci si on
s� (in
�e xp er im
en t�b
y� ch oo
si ng
�X )�b
y� re st ri ct in g�
ou tp ut �to
�in cr ea se �m
ar ke t�p
ri ce ��B U T
• Ea ch �c ar te l�m
em be
r�h as �in ce nt iv es �to
�c h e a t on
�th e�
ag re em
en t�b
y� in cr ea si ng
�o ut pu
t�( in �th
e� ex pe
ri m en
t�b y�
ch oo
si ng
�Y �g iv en
�th at �a ll� ot he
rs �c ho
os e� X, �a �p la ye r�
ea rn s� m or e, �s o� he
�h as �in ce nt iv es �to
�b re ak �c ar te l�a nd
� ch oo
se �Y ).
• So m e� ca rt el s� te nd
�to �b re ak �a pa rt �e ve n� w ith
ou t�
go ve rn m en
t�i nt er ve nt io n. �
• A re �th
e� ca rt el s� w e� kn ow
�o f�t he
�“ un
su cc es sf ul ”� on
es ��
or �th
e� “u nl uc ky ”� on
es ?
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �2 6
D et ec tio
n� of �c ar te ls �– A nt itr us t�l aw
s
– Ca rt el s� ar e� ill eg al �– co m pa re �g ai ns �w ith
�p ro ba bi lit y� of �b ei ng
�c au gh t�a
nd �
pa yi ng
�a �fi ne
� –
A ll� O EC D �c ou
nt ri es �h av e� so m e� an tit ru st �a ut ho
ri ty
• Eu
ro pe
an �C om
m is si on
�e nf or ce s� an tit ru st �s ec tio
ns �o f�t he
�R om
e� Tr ea ty �
• M em
be r� co un
tr ie s� ha ve �o w n� co m pe
tit io n� co m m is si on
s
– A s� do
�n on
ͲO EC D �c ou
nt ri es ��l ik e� Br az il, �A rg en
tin a, �In
di a
– Th e� U S� D ep
ar tm
en t�o
f�J us tic e� an d� th e� Fe de
ra l�T ra de
�C om
m is si on
�“ pr om
ot e�
an d� pr ot ec t�t he
�c om
pe tit iv e� pr oc es s”
• Pr ic eͲ fix in g� La w s: �(S he
rm an
�A ct �o f�1
89 0, �s ec tio
n� 1)
• M on
op ol iz at io n: �(S he
rm an
�A ct �o f�1
89 0, �s ec tio
n� 2)
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �2 7
D et er m in an ts �o f�s uc ce ss fu l�c oo
pe ra tio
n
– A bi lit y� to �p ri ce Ͳf ix in g:
• Ca rt el �p ro du
ce s� a� la rg e� sh ar e� of �m
ar ke t
• Fa ce s� in el as tic
�d em
an d� (li tt le �s ub
st itu
te s� ou
ts id e� ca rt el �o r� lit tle
�e nt ry �b y� fir m s�
ou ts id e� ca rt el )
• Lo w �p ro ba bi lit y� of �d et ec tio
n� fr om
�a nt iͲt ru st �a ut ho
ri tie
s • Lo w �o rg an iz at io na l�c os ts
– Ea sy �d et ec tio
n� & qu
ic k� �a nd
�s ev er e� pu
ni sh m en ts �if �
ch ea tin
g: • Li tt le �c ha ng es �in
�m ar ke t�d
em an d, �
• Li tt le �u nc er ta in ty �a bo
ut �fi rm
s’ �c os ts ,�
• Fe w er �a nd
�s im
ila r�f ir m s� w ith
�li tt le �p ro du
ct �d iff er en
tia tio
n
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �2 8
M ak in g� it� di ff ic ul t�f or �a �m
em be
r� to �c he
at �(c on
t)
– M ar ke t�a
llo ca tio
n� sc he
m es �(e
.g .�d is tr ib ut e�
ge og ra ph
ic al �a re as �to
�e ac h� m em
be r,� so �th
at �c he
at in g� is �
ea si ly �d et ec te d)
– D is tr ib ut e� a� pr io ri �m
ar ke t�s ha re s� (e .g .�n ex t�O
PE C)
– M os tͲ fa vo re d� na tio
n� cl au se
– M ee tin
g� co m pe
tit io n� cl au se
– Tr ig ge r�p
ri ce �re
fe re nc e�
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �2 9
D ea dw
ei gh t�l os s� of �c ar te l
• Co
ns um
er s� ga in �w he
n� ca rt el �fa ils
• Th e� la rg er �t he
�m ar ke t� sh ar e� of �th
e� ca rt el �t he
�g re at er �th
e� ef fic ie nc y� co st �o f�
th e� ca rt el �(s ee
�n ex t�s lid es �c ar te l�w
ith �5 0, �3 0� an d� 10
�fi rm
s� an d� in �th
e� lim
it� no
�fi rm
s� ca se s)
• A �p ar tia
l�c ar te l�i s� lik e� th e� do
m in an t�f ir m �w ith
�c om
pe tit iv e� fr in ge
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �3 0
D ea dw
ei gh t�l os s� of �c ar te l�w
ith �3 0� fir m s�
$ $
S N C
M ar
ke t d
em an
d
M ar
ke t d
em an
d
N on
c ar
te l s
up pl
y by
2 0
fi rm
s
Q Q
10
M R
C (p
)
C ar
te l M
ar gi
na l C
os t
24 0
24
28 0
30
C ar
te l s
up pl
y by
3 0
fi rm
s50 fi
rm ’s
m ar
gi na
l c os
t
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �3 1
D ea dw
ei gh t�l os s� of �c ar te l�w
ith �1 0� fir m s�
$ $
S N C
M ar
ke t d
em an
d
M ar
ke t d
em an
d
N on
c ar
te l s
up pl
y by
4 0
fi rm
s
Q Q
10
M R
C (p
)
C ar
te l M
ar gi
na l C
os t
54 7
21 .630
C ar
te l s
up pl
y by
1 0
fi rm
s50 fi
rm ’s
m ar
gi na
l c os
t
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �3 2
D ea dw
ei gh t�l os s� of �c ar te l�w
ith �5 0� fir m s�
=� m on
op ol y� D W L�
$ $
M ar
ke t d
em an
d
M ar
ke t d
em an
d
N on
c ar
te l s
up pl
y by
2 0
fi rm
s
Q Q
10
M R
C (p
)
C ar
te l M
ar gi
na l C
os t =
33 3
28 0
33 .3
C ar
te l s
up pl
y by
3 0
fi rm
s50 fi
rm ’s
m ar
gi na
l c os
t
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �3 3
In �th
e� lim
it� if� ca rt el �g et s� no
�fi rm
s� =�
co m pe
tit io n
$ $
S N C
M ar
ke t d
em an
d
M ar
ke t d
em an
d
N on
c ar
te l s
up pl
y by
a ll
50 fi
rm s
Q Q
10
M R
C (p
)
57 1
21 .4
57 1
50 fi
rm ’s
m ar
gi na
l c os
t
Le ct ur e� 4: �
Ex am
pl e� of �P ro je ct �fo
r� EE P� 14
2 Br ie f�b
ac kg ro un
d O PE C� v. �C IP EC
� w hy �O PE C� w or ks
W hy �C IP EC
�d id �n ot
M od
el �o f�O
PE C� in �A ct io n
A lte
rn at iv es �to
�O PE C
Co nc lu si on
La te r� in �c la ss �u se �m
od el �to
�d is cu ss �e ne
rg y� po
lic y
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P1 42
Pa ge �3 4
Vi lla sͲ Bo
as ͲL ec tu re �3
E E P 14 2
Pa ge �3 5
N ex t�l ec tu re s� w e’ ll� st ud
y� no
nͲ co op
er at iv e� ol ig op
ol ie s�
& �G am
e� Th eo
ry �& �w at ch �a �c ar te l�i n� ac tio
n� m ov ie :
Ͳ A �s m al l�a nd
�fi xe d� nu
m be
r� of �fi rm
s� m ee t�( th er e� is �n o� en tr y� an d� no
�re pe
at ed
� in te ra ct io ns )
Ͳ La te r� in �s em
es te r: �re
pe at ed
�in te ra ct io ns
Ͳ A ll� se ll� id en tic al �p ro du
ct s� (h om
og en
eo us )
Ͳ La te r� in �s em
es te r: �d iff er en
tia te d� pr od
uc ts
Ͳ Ea ch �fi rm
�in �a n� ol ig op
ol y� th in ks �th
e� fo llo w in g� ev er y� tim
e� it� de
ci de
s� its �a ct io n: �
“S in ce �I� k n o w �m y� co m p e ti to rs �w il l�r e sp o n d �to
�m y� a ct io n �a n d �s in ce �I� k n o w �th
a t�t h e y�
k n o w �th
a t�I �w il l�r e sp o n d �to
�th e ir �re
sp o n se �ra
th e r�t h a n �b e �p a ss iv e ,�h o w �s h o u ld �I� a ct �
in �th
e �fi rs t�p
la ce ?
Ͳ Co
nf us ed
?� It �is �e as y� to �g et �c on
fu se d� w ith
ou t�u
si ng
�G a m e �T h e o ry
… Ͳ
G am
e� th eo
ry �:� le ts �u s� g o �b e yo n d �th
is �d o u b le �g u e ss in g ,�f o rm
a li ze s� th e �fu
n d a m e n ta l�
st ra te g ic �a sp e ct s� a n d �a ll o w s� u s� to �g e t�a
n �e q u il ib ri u m
