產(chǎn)業(yè)經(jīng)濟(jì)學(xué)英文版課件：7-Classic Models of Oligopoly

1、7-Classic Models of Oligopoly1The Prisoners DilemmaBonnie s DecisionConfessConfessBonnie gets 8 yearsClyde gets 8 yearsBonnie gets 20 yearsClyde goes freeBonnie goes freeClyde gets 20 yearsgets 1 yearBonnie Clyde gets 1 yearRemain SilentRemainSilentClydesDecisionSpring 2013Industrial Organization-Li

2、ly2Nash EquilibriumNash Equilibrium: a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen.Cooperation between the two prisoners is difficult to maintain, because cooperation is individually irrati

3、onal.Spring 2013Industrial Organization-Lily3CournotThe rules/assumptionsProducts are homogeneous.Firms choose output.Firms compete with each other just once and they make their production decisions simultaneously.There is no entry by other producers.Spring 2013Industrial Organization-Lily4CournotSp

4、ring 2013Industrial Organization-Lily5Quantity (gallons)PriceTotal Revenue (and Total Profit)01200101101,100201002,00030902,70040803,20050703,50060603,60070503,50080403,20090302,700100202,000110101,10012000Jack and Jills Oligopoly GameJacks DecisionHigh ProductionHigh Production: 40 Gal.Jack gets $1

5、,600 profitJill gets $1,600 profitJack gets $1,500 profitJill gets $2,000 profitJack gets $2,000 profitJill gets $1,500 profitJack gets $1,800 profitJill gets $1,800 profitLow Production: 30 gal.LowProductionJillsDecision40 gal.30 gal.Spring 2013Industrial Organization-Lily6Nash EquilibriumIn this e

6、xample, the Nash equilibrium occurs when both Jack and Jill are producing 40 gallons.Given that Jack expects Jill to produce 40 gallons, he will not be better off at any other output level than 40 gallons.Given that Jill expects Jack to produce 40 gallons, she will not be better off at any other out

7、put level than 40 gallons.Spring 2013Microeconomics-Lily7Monopoly and CompetitionSpring 2013Industrial Organization-Lily8MonopolyCompetitionCournot Equilibrium Spring 2013Industrial Organization-Lily9SolutionSpring 2013Industrial Organization-Lily10Properties of the Cournot EquilibriumSpring 2013Ind

8、ustrial Organization-Lily11Properties of the Cournot EquilibriumSpring 2013Industrial Organization-Lily12Properties of the Cournot EquilibriumFirms with lower MC will have greater market shares: more efficient firms will be larger.The higher barriers to entry, the fewer the number of competitors and

9、 the greater a firms market power.The Herfindahl-Hirschman Index (HHI) is the sum of the squares of market shares and it is a common measure of market concentration. The HHI can vary between 0 (perfect competition) and 1 (monopoly). Fewer firms and larger variations in market shares increase H ,indi

10、cating a greater degree of concentration.Spring 2013Industrial Organization-Lily13Bertrand CompetitionBertrand criticized Cournot, claiming that firms choose prices, not quantities, and that they have very strong incentives to undercut each other: “if only one of the competitors lowers his price, he

11、 gains, disregarding all unimportant exceptions, all the sales, and he will double his returns if his competitor allows him to do so ”.Spring 2013Industrial Organization-Lily14The Bertrand ParadoxSpring 2013Industrial Organization-Lily15The Bertrand Paradox16Spring 2013Industrial Organization-Lily16

12、Four Possible EquilibriumSpring 2013Industrial Organization-Lily17The Bertrand ParadoxThe Nash equilibrium to this simple Bertrand game has two significant features:Two firms are enough to eliminate market power.Competition between two firms results in complete dissipation of profits.These features

13、are the foundation of the Bertrand paradox: two firms are sufficient for the competitive outcome. However, marginal cost pricing as a Nash equilibrium is not robust to variations in the Bertrand game. Spring 2013Industrial Organization-Lily18The Bertrand ParadoxTwo major variantsproduct differentiat

14、ion and capacity limitationsare introduced in the next two sections. First, however, we consider two extensions to the basic Bertrand game: The effect of increasing returns to scale and Constant, but asymmetric, unit costs19The Effect Of Increasing Returns To Scale20Constant, But Asymmetric, Unit Co

15、sts21Product DifferentiationSpring 2013Industrial Organization-Lily22CASE STUDY: Coca-Cola and PepsiCASE STUDY: Coca-Cola and PepsiP2P1R26.49R110.44p1=12.72Hp2= 9.11The actual prices are:Spring 2013Industrial Organization-Lily24Capacity ConstraintsWhen capacity is small, the equilibrium to the capac

16、ity-constrained price game is for each firm to charge the price that equates demand to capacity.When capacities are large, the equilibrium involves a mixed-strategy equilibrium with prices greater than marginal cost.When capacities are very large, then the equilibrium strategies are for the firms to

17、 price at marginal cost.25Spring 2013Industrial Organization-Lily25Cournot vs. BertrandThe Cournot model is appropriate when firms are capacity constrained and investments in capacity are sluggish. the Bertrand model might be appropriate in situations where there are constant returns to scale and fi

18、rms are not capacity constrained. Though the Bertrand model is probably more descriptive of actual firm behavior in that firms choose prices, both intuition and empirical evidence are more in accord with the predictions of the Cournot model.Spring 2013Industrial Organization-Lily26Chapter SummaryThe

19、re are two classes of static oligopoly models. In Cournot models, firms compete over quantities. In Bertrand models they compete over price.The Cournot equilibrium is a Nash equilibrium in quantities. In the Cournot equilibrium firms have market power, which is decreasing in the number of firms and the elasticity of demand. The Herfindahl-Hirschman index is a measure of firm concentration. In the Cournot equilibrium HHI is a measure of the indu