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Principles of Microeconomics


Oligopoly


An oligopoly is a market structure in which only a few sellers offer similar or identical products. The study of oligopoly highlights the importance of strategic interactions. Competitive and monopoly firms do not worry about competitors. A firm in a competitive market only worries about their costs and the market price, and a monopoly has no competitors. However, firms in oligopolies must be aware of what prices their competitors are charging and how much they are producing. If they are not aware, they can lose, while their competitors gain. Game theory is a useful tool to apply to strategic interactions. The Pencasts for this topic cover the application of game theory using a payoff matrix.


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Cooperation versus Self Interest #1

This Pencast illustrates the conflict between cooperation and self-interest in the context of an applied duopoly problem. It explains how to determine if firms in a duopoly have a dominant strategy. Furthermore, it shows illustrates how to find the Nash equilibrium, which is a non-cooperative equilibrium, and the monopoly equilibrium, which is a cooperative equilibrium. [Play Pencast]


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Cooperation versus Self Interest #2

This Pencast illustrates the conflict between cooperation and self-interest in the context of an applied duopoly problem. It explains how to determine if firms in a duopoly have a dominant strategy. The problem is complicated by the fact that one player’s strategy depends on what the other play does. As a result, it shows how to predict which outcome is the most likely to occur. [Play Pencast]


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