Sie sind auf Seite 1von 34

Oligopoly Games

An Oligopoly Price-Fixing Game


A game like the prisoners dilemma is
played in duopoly.
A duopoly is a market in which there are
only two producers that compete.
Duopoly captures the essence of oligopoly.
Figure 13.8 on the next slide describes the
demand and cost situation in a natural
duopoly.

Oligopoly Games
Part (a) shows each firms cost curves.
Part (b) shows the market demand curve.

Oligopoly Games
This industry is a natural duopoly.
Two firms can meet the market demand at the least cost.

Oligopoly Games
How does this market work?
What is the price and quantity produced in equilibrium?

Oligopoly Games
Suppose that the two firms enter into a
collusive agreement.
A collusive agreement is an agreement
between two (or more) firms to restrict
output, raise price, and increase profits.
Such agreements are illegal in the United
States and are undertaken in secret.
Firms in a collusive agreement operate a
cartel.

Oligopoly Games
The possible strategies are:
Comply
Cheat
Because each firm has two strategies,
there are four possible outcomes:
Both comply
Both cheat
Trick complies and Gear cheats
Gear complies and Trick cheats

Oligopoly Games
The first possible outcomeboth complyearns
the maximum economic profit, which is the same
as a monopoly would earn.

Oligopoly Games
To find that profit, we set marginal cost for the
cartel equal to marginal revenue for the cartel.
Figure 13.9 shows this outcome.

Oligopoly Games
The cartels marginal cost curve is the horizontal
sum of the MC curves of the two firms and the
marginal revenue curve is like that of a monopoly.

Oligopoly Games
The firms maximize economic profit by
producing the quantity at which MCI = MR.

Oligopoly Games
Each firm agrees to produce 2,000 units and
each firm shares the maximum economic
profit.

Oligopoly Games
When each firm produces 2,000 units, the price
is greater than the firms marginal cost, so if one
firm increased output, its profit would increase.

Oligopoly Games
Figure 13.10 shows what happens when one firm
cheats and increases its output to 3,000 units.
Industry output rises to 5,000 and the price falls.

Oligopoly Games
For the complier, ATC now exceeds price.
For the cheat, price exceeds ATC.

Oligopoly Games
The complier incurs an economic loss.
The cheat earns an increased economic profit.

Oligopoly Games
Either firm could cheat, so this figure shows two
of the possible outcomes.
Next, lets see the effects of both firms cheating.

Oligopoly Games
Figure 13.11 shows the outcome if both firms
cheat and increase their output to 3,000 units.

Oligopoly Games
Industry output is 6,000 units, the price falls, and
both firms earn zero economic profitthe same
as in perfect competition.

Oligopoly Games
Youve now seen the four possible outcomes:
If both comply, they make $2 million a week
each.
If both cheat, they earn zero economic profit.
If Trick complies and Gear cheats, Trick incurs
an economic loss of $1 million and Gear makes
an economic profit of $4.5 million.
If Gear complies and Trick cheats, Gear incurs
an economic loss of $1 million and Trick makes
an economic profit of $4.5 million.
The next slide shows the payoff matrix for the
duopoly game.

Payoff
Matrix

Tricks
view
of the
world

Tricks
view
of the
world

Gears
view
of the
world

Gears
view
of the
world

Equilibrium

Oligopoly Games
The Nash equilibrium is where both firms cheat.
The quantity and price are those of a competitive
market, and the firms earn normal profit.

Other Oligopoly Games


Advertising and R & D games are also prisoners
dilemmas.

An R & D Game
Procter & Gamble and Kimberley Clark play an R
& D game in the market for disposable diapers.

Repeated Games and


Sequential Games
A Repeated Duopoly Game
If a game is played repeatedly, it is possible for
duopolists to successfully collude and earn a
monopoly profit.
If the players take turns and move sequentially
(rather than simultaneously as in the prisoners
dilemma), many outcomes are possible.
In a repeated prisoners dilemma duopoly game,
additional punishment strategies enable the firms
to comply and achieve a cooperative
equilibrium, in which the firms make and share
the monopoly profit.

Repeated Games and


Sequential Games
One possible punishment strategy is a tit-fortat strategy, in which one player cooperates
this period if the other player cooperated in
the previous period but cheats in the current
period if the other player cheated in the
previous period.
A more severe punishment strategy is a
trigger strategy in which a player cooperates
if the other player cooperates but plays the
Nash equilibrium strategy forever thereafter
if the other player cheats.

Repeated Games and


Sequential Games
Price wars might result from a tit-for-tat
strategy where there is an additional
complicationuncertainty about
changes in demand.
A fall in demand might lower the price
and bring forth a round of tit-for-tat
punishment.

Repeated Games and


Sequential Games
A Sequential Entry Game in a
Contestable Market
In a contestable marketa market in
which firms can enter and leave so
easily that firms in the market face
competition from potential entrants
firms play a sequential entry game.

Repeated Games and


Sequential Games
Figure 13.12 shows the game tree for a sequential
entry game in a contestable market.

Repeated Games and


Sequential Games
In the first stage, Agile decides whether to set
the monopoly price or the competitive price.

Repeated Games and


Sequential Games
In the second stage, Wanabe decides
whether to enter or stay out.

Repeated Games and


Sequential Games
In the equilibrium of this entry game,
Agile sets a competitive price and earns
a normal profit to keep Wanabe out.
A less costly strategy is limit pricing,
which sets the price at the highest level
that is consistent with keeping the
potential entrant out.

Das könnte Ihnen auch gefallen