ECON 102 Oligopoly and Strategic Behavior

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Oligopolgy

very few sellers, knows how other sellers will react to changes in price and quanitiy Small, large

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Network effect

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______ number of _____ firms Interdepence Strategic dependence Reaction function Quantity reaction function is used for Price reaction function is used for Why oligopolys occur Economies of scale Why oligopolys occur Barriers to entry Why oligopolys occur Mergers Vertical merger

consumer's willingness to purchase a good is influenced by the number of other people who bought the good Facebook, phone product catches on Facebook falls out of favor Myspace firm that produces and sells two or more different items ceral apple, video game consoles USB, anything standard

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firm A considers what firm B will do acting after a firm makes decisions to benefit your firm q1=f(q2) p1=f(p2) a homogenous good produced by multiple companies oligopoly firms offer differentiated products larger firms are more efficient, less firms in industry Difficult for new competitors to enter
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Positive market feedback Negative market feedback Multiproduct firm Incompatable products Compatible examples

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smaller firms become one large firm a firm who sells an output joins the firm they sell it to pepsi buying a bottling company two firms joining together that are selling a similar product Pepsi and Coke percentage of all sales contributed by the leader 4-8 firms very concentrated, little competition spread out, high competition association of producers to agree to set common prices and quotas to prevent competition firms act together to restrict production and increase prices monopoly prices, profits distributed to cartel members increase output and lower market price for non cheaters small number of firms undifferentiated products easily observable and similar price

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Horizontal merger

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Concentration Ratio High concentration ratio Low concentration ratio Cartel

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Collusion Successful cartel/collusion means Cartel cheaters The probability of cheaters will decrease if (3)

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