C||gopo|y

W 8ecause of Lhe few sellers Lhe acLlons of any one

seller ln Lhe markeL can have a large lmpacL on Lhe
proflLs of all Lhe oLher sellers
W lew sellers offerlng slmllar producL
W lnLerdependence among flrms ln lndusLry
W 8esL off by cooperaLlng and acLlng llke a monopollsL
W 8uL such expllclL cooperaLlon may noL be posslble
due Lo anLlLrusL laws or due Lo LempLaLlon for
cheaLlng
W A duopoly ls an ollgopoly wlLh only Lwo members lL
ls Lhe slmplesL Lype of ollgopoly
emand Schedule for WaLer (MC 0)
0uant|ty Pr|ce Tota| Revenue
0 S120 S 0
10 110 1,100
20 100 2,000
30 90 2,Z00
10 80 3,200
50 Z0 3,500
0 0 3,00
Z0 50 3,500
80 10 3,200
90 30 2,Z00
100 20 2,000
110 10 1,100
120 0 0
9rlce and CuanLlLy Supplled
W 1he prlce of waLer ln a perfecLly compeLlLlve markeL
would be drlven Lo where MC 0
W l Mc 50 O 120 qolloos
W 1he prlce and quanLlLy ln a monopoly markeL would
be where LoLal proflL ls maxlmlzed
W l 560 O 60 qolloos
W llgopoly C ??
WWhen flrms ln an ollgopoly lndlvldually choose
producLlon Lo maxlmlze proflL Lhey produce quanLlLy
of ouLpuL greaLer Lhan Lhe level produced by monopoly
and less Lhan Lhe level produced by compeLlLlon
W1he ollgopoly prlce ls less Lhan Lhe monopoly prlce buL
greaLer Lhan Lhe compeLlLlve prlce (whlch equals
marglnal cosL)
ow Lhe Slze of an llgopoly
AffecLs Lhe MarkeL uLcome
ow |ncreas|ng the number of se||ers affects the
pr|ce and quant|ty
1he ouLpuL effecL 8ecause prlce ls above
marglnal cosL selllng more aL Lhe golng prlce
ralses proflLs
1he prlce effecL 8alslng producLlon lowers Lhe
prlce and Lhe proflL per unlL on all unlLs sold
ame 1heory
Wame Lheory ls Lhe sLudy of how people behave ln
sLraLeglc slLuaLlons
WSLraLeglc declslons are Lhose ln whlch each person ln
decldlng whaL acLlons Lo Lake musL conslder how
oLhers mlghL respond Lo LhaL acLlon
ame 1heory and Lhe Lconomlcs of
CooperaLlon
W 8ecause Lhe number of flrms ln an ollgopollsLlc
markeL ls small each flrm musL acL sLraLeglcally
W Lach flrm knows LhaL lLs proflL depends noL only on
how much lL produced buL also on how much Lhe
oLher flrms produce
1he 9rlsoners' llemma
W1he prlsoners' dllemma provldes lnslghL lnLo Lhe
dlfflculLy ln malnLalnlng cooperaLlon
Often people (firms) fail to cooperate
with one another even when cooperation
would make them better off.
Bonnie's Decision
Confess Remain Silent
Confess
Remain
Silent
Clyde's
Decision
Clyde gets
8 years
Bonnie gets
8 years
Bonnie gets
20 years
Bonnie gets
1 year
Bonnie goes
free
Clyde gets
20 years
Clyde gets
1 year
Clyde goes
free

W1he domlnanL sLraLegy ls Lhe besL sLraLegy for a player

Lo follow regardless of Lhe sLraLegles pursued by oLher
players
WCooperaLlon ls dlfflculL Lo malnLaln because
cooperaLlon ls noL ln Lhe besL lnLeresL of Lhe lndlvldual
player
WSelflnLeresL makes lL dlfflculL for Lhe ollgopoly Lo
malnLaln a cooperaLlve ouLcome wlLh low producLlon
hlgh prlces and monopoly proflLs
W llrms LhaL care abouL fuLure proflLs wlll cooperaLe ln
repeaLed games raLher Lhan cheaLlng ln a slngle
game Lo achleve a oneLlme galn
Why 9eople SomeLlmes CooperaLe
W CooperaLlon among ollgopolles ls undeslrable from
Lhe sLandpolnL of socleLy as a whole because lL leads
Lo oJoctloo tbot ls too low and lces tbot oe too
blqb
9ubllc 9ollcy 1oward llgopolles