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What is the profit-maximizing price for Firm 1 when Firm 2 charges $4?
What is the profit-maximizing price for Firm 1 when Firm 2 charges $4?
If Firm 2 decides to cheat while Firm 1 is colluding to charge $6, what is the potential impact on Firm 2's profit?
If Firm 2 decides to cheat while Firm 1 is colluding to charge $6, what is the potential impact on Firm 2's profit?
What do the reaction curves of Firm 1 and Firm 2 reveal about their pricing strategies?
What do the reaction curves of Firm 1 and Firm 2 reveal about their pricing strategies?
What does the Nash equilibrium indicate about the pricing strategy when both firms are rational?
What does the Nash equilibrium indicate about the pricing strategy when both firms are rational?
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What is the highest price that both firms can charge while competing based on the information provided?
What is the highest price that both firms can charge while competing based on the information provided?
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What is the primary characteristic of a dominant firm in the market?
What is the primary characteristic of a dominant firm in the market?
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At what price level does the demand for the dominant player become zero?
At what price level does the demand for the dominant player become zero?
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What happens to the demand for the dominant player at prices below P2?
What happens to the demand for the dominant player at prices below P2?
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What is the total output in the market represented by?
What is the total output in the market represented by?
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Why do oligopolistic firms tend to engage in price leadership?
Why do oligopolistic firms tend to engage in price leadership?
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What are the profits for Firm 1 and Firm 2 if both firms honor their agreement and charge $6?
What are the profits for Firm 1 and Firm 2 if both firms honor their agreement and charge $6?
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What profit does Firm 1 achieve if it cheats and charges $4 while Firm 2 charges $6?
What profit does Firm 1 achieve if it cheats and charges $4 while Firm 2 charges $6?
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If both firms choose to cheat and charge $4, what is the resulting profit for each firm?
If both firms choose to cheat and charge $4, what is the resulting profit for each firm?
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Which statement accurately reflects the concept of noncooperative games?
Which statement accurately reflects the concept of noncooperative games?
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What is the intended outcome of price signaling?
What is the intended outcome of price signaling?
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In the payoff matrix, what is the profit for Firm 1 if it charges $6 while Firm 2 also charges $6?
In the payoff matrix, what is the profit for Firm 1 if it charges $6 while Firm 2 also charges $6?
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Which of the following best describes price leadership?
Which of the following best describes price leadership?
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What happens to the profits of Firm 2 if it charges $4 while Firm 1 charges $6?
What happens to the profits of Firm 2 if it charges $4 while Firm 1 charges $6?
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What results from Nash equilibrium in the Bertrand model for two firms?
What results from Nash equilibrium in the Bertrand model for two firms?
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Under the Bertrand model, what happens when both firms compete on prices?
Under the Bertrand model, what happens when both firms compete on prices?
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In the context of the Bertrand model, simultaneous price competition primarily leads to which outcome?
In the context of the Bertrand model, simultaneous price competition primarily leads to which outcome?
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What is the key difference between the price competition in the Bertrand model compared to the Cournot model?
What is the key difference between the price competition in the Bertrand model compared to the Cournot model?
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If two firms in the Bertrand model have marginal costs of $3, what will be the market price at equilibrium?
If two firms in the Bertrand model have marginal costs of $3, what will be the market price at equilibrium?
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Why does price competition stop at the average cost level in the Bertrand model?
Why does price competition stop at the average cost level in the Bertrand model?
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What is indicated by the Bertrand model when firms produce homogeneous goods?
What is indicated by the Bertrand model when firms produce homogeneous goods?
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What is the profit outcome for firms in the Bertrand model once equilibrium is reached?
What is the profit outcome for firms in the Bertrand model once equilibrium is reached?
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What is the reaction curve for Firm 1 in the Cournot model?
What is the reaction curve for Firm 1 in the Cournot model?
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In the Stackelberg model, what advantage does the first mover have?
In the Stackelberg model, what advantage does the first mover have?
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What is the Cournot equilibrium quantity for both firms?
What is the Cournot equilibrium quantity for both firms?
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What happens to Firm 2's output in the Stackelberg model when Firm 1 produces a higher quantity?
What happens to Firm 2's output in the Stackelberg model when Firm 1 produces a higher quantity?
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Which factor contributes to the different outputs of Firm 1 and Firm 2 in the Stackelberg model?
Which factor contributes to the different outputs of Firm 1 and Firm 2 in the Stackelberg model?
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How is marginal revenue for Firm 1 calculated in the Cournot model?
How is marginal revenue for Firm 1 calculated in the Cournot model?
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Under what condition are the firms in perfect competition regarding their pricing strategy?
Under what condition are the firms in perfect competition regarding their pricing strategy?
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What is the implication of the Prisoners’ Dilemma for oligopolistic pricing?
What is the implication of the Prisoners’ Dilemma for oligopolistic pricing?
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Study Notes
Oligopoly II
- Oligopoly is a market structure with a small number of firms, influencing each other's decisions
- Price competition occurs when firms compete on price to gain market share
- Collusion is when firms cooperate to set prices or output levels, often to increase their joint profits
- The Prisoner's Dilemma is a game theory example demonstrating that cooperation may not be in individual firms' best interests if their agreement isn't legally binding
- The Cournot model uses reaction curves to determine equilibrium. Firms simultaneously set quantities, assuming their competitor's quantity is fixed
- In the Stackelberg model, one firm sets its output first, enabling an output advantage (first mover) compared to competitors (second movers)
- The Bertrand model models price competition, where firms set prices simultaneously, with the equilibrium price matching marginal cost.
- Oligopoly models may involve homogeneous (identical) or differentiated (distinguishable) products
Price Competition: Bertrand Model
- Firms competing on price, treating the prices of other firms as fixed
- Price continuously decreases when firms seek greater market share
- Equilibrium result leads to zero economic profits when prices reach marginal cost
Price Competition with Differentiated Products
- Firms produce distinct products and their demand curves depend on the price of other firms' products
- Profits are maximized when the competitor's price is accounted for
- Firms' reaction curves are analyzed to compute prices to obtain the Nash equilibrium
Competition vs. Collusion
- Both parties know if they compete, they cannot charge more than 4 dollars
- Charging 6 dollars can be more profitable if they collude
- Cheating by one party allows for obtaining higher profits
Dominant Player
- A firm with a sizeable market share
- It sets prices based on other smaller or fringe firms' actions and supply
- When all 'fringe' firms supply zero output, the demand for the dominant player's output equals market demand
- The dominant firms' output determines the total market outcome
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Description
Explore the intricacies of oligopoly as a market structure with this quiz. Dive into concepts such as price competition, collusion, and key models like Cournot and Stackelberg. Test your understanding of how these elements interact to influence market dynamics and firm behavior.
