Chp. 17

Chapter 17 is mainly about oligopolies which are market structures in which only a few sellers offer similar or identical products. It consists of game theory, the study of how people behave in strategic situations. A duopoly is oligopoly with only two members, a collusion is an agreement among firms in a market about quantities to produce or prices to charge, cartel is a group of firms acting in unison (must agree on level of production and amount produced by each seller) would act as a monopoly, but this is often unrealistic because of dividing profit evenly and antitrust laws that prohibit explicit agreements among oligopolists both firms would want to produce based on self interest and then they would over produce.The Nash equilibrium is 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 illustrates tension between cooperation and self-interest. When firms in an oligopoly individually choose production to maximize profit, they produce a quantity of output greater than the level produced by monopoly and less than the level produced by competition. The oligopoly price is less than the monopoly price but greater than the competitive price (which equals zero) the output effect: because price is above MC, selling one more gallon of water at the going price will raise profit the price effect is raising production will increase the total amount sold, which will lower the price of water and lower the profit on all the gallons sold (if its smaller than output, then production will increase but if its larger than output, then they will not raise production). As oligopolies produce more they get closer to being like a competitive market (P gets closer to MC and Q produced gets closer to socially efficient level). The dominant strategy is the strategy that is best for a player regardless of the strategies chosen by the other player self interest leads to a negative outcome in the prisoner's dilemma.