【正文】 player for every possible action by the other player. The next slide shows the payoff matrix for this prisoners’ dilemma game. Oligopoly Games 169。 2020 Pearson AddisonWesley Oligopoly Games Game theory is a tool for studying strategic behavior, which is behavior that takes into account the expected behavior of others and the mutual recognition of interdependence. All games have four mon features: ? Rules ? Strategies ? Payoffs ? Oute 169。 2020 Pearson AddisonWesley What Is Oligopoly? Oligopoly is a market structure in which ? Natural or legal barriers prevent the entry of new firms. ? A small number of firms pete. 169。15 OLIGOPOLY 169。 2020 Pearson AddisonWesley Barriers to Entry Either natural or legal barriers to entry can create oligopoly. Figure shows two oligopoly situations. In part (a), there is a natural duopoly—a market with two firms. What Is Oligopoly? 169。 2020 Pearson AddisonWesley The Prisoners’ Dilemma In the prisoners’ dilemma game, two prisoners (Art and Bob) have been caught mitting a petty crime. Rules The rules describe the setting of the game, the actions the players may take, and the consequences of those actions. Each is held in a separate cell and cannot municate with each other. Oligopoly Games 169。 2020 Pearson AddisonWesley Oligopoly Games 169。 2020 Pearson AddisonWesley Art’s view of the world 169。 2020 Pearson AddisonWesley Oligopoly Games Bad Oute For the prisoners, the equilibrium of the game is not the best oute. If neither confesses, each gets a 2year sentence. Can this better oute be achieved? No, it can’t because each prisoner can figure out that there is a best strategy for each of them. Each knows that it is not in his best interest to deny. 169。 2020 Pearson AddisonWesley How does this market work? What is the price and quantity produced in equilibrium? Oligopoly Games 169。 2020 Pearson AddisonWesley To find that profit, we set marginal cost for the cartel equal to marginal revenue for the cartel. Oligopoly Games 169。 2020 Pearson AddisonWesley When each firm produces 2,000 units, the price is greater than the firm’s marginal cost, so if one firm increased output, its profit would increase. Oligopoly Games 169。 2020 Pearson AddisonWesley Both Firms Cheat Suppose that both increase their output to 3,000 units. Oligopoly Games 169。 2020 Pearson AddisonWesley Trick’s view of the world 169。 2020 Pearson AddisonWesley Equilibrium 169。D Game Procter amp。 2020 Pearson AddisonWesley The Disappearing Invisible Hand In all the versions of the prisoners’ dilemma that we’ve examined, the players end up worse off than they would if they were able to cooperate. The pursuit of selfinterest does not promote the social interest in these games. Oligopoly Games 169。D of either firm. Suppose that either Apple or Nokia spends $9 million developing a new touchscreen technology that both would end up being able to use, regardless of which firm spends the $9 million. The next slide shows the payoff matrix. Oligopoly Games 169。D. 169。 2020 Pearson AddisonWesley If Nokia does Ramp。D, Apple’s best strategy is to do Ramp。D. But we cannot tell which firm will do the Ramp。 2020 Pearson AddisonWesley Table shows that a titfortat strategy is sufficient to produce a cooperative equilibrium in a repeated duopoly game. Repeated Games and Sequential Games 169。 2020 Pearson AddisonWesley In the first stage, Agile decides whether to set the monopoly price or the petitive price. Repeated Games and Sequential Games 169。 2020 Pearson AddisonWesley Antitrust Law The Sherman Act outlawed any “bination, trust, or conspiracy that restricts interstate trade,” and prohibited the “attempt to monopolize.” 169。 2020 Pearson AddisonWesley Price Fixing Always Illegal Price fixing is always a violation of the antitrust law. If the Justice Department can prove the existence of price fixing, there is no defense. Antitrust Law 169。 2020 Pearson AddisonWesley Predatory Pricing Predatory pricing is setting a low price to drive petitors out of business with the intention of then setting the monopoly price. Economists are skeptical that predatory pricing actually occurs. A high, certain, and immediate loss is a poor exchange for a temporary, uncertain, and future gain. No case of predatory pricing has been definitively found. Antitrust Law 169。 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley Public Choices Replacing markets with government resource allocation decisions is no simple matter. Government failure is a situation in which government actions lead to inefficiency Government failure can lead to overprovision or under provision. 169。 2020 Pearson AddisonWesley Public Choices Political Equilibrium In a political equilibrium the choices of voters, firms, politicians, and bureaucrats are patible and no group can see a way of improving its position by making a different choice. 169。 2020 Pearson AddisonWesley A FourFold Classification Private Goods A private good is both rival and excludable. A can of Coke and a fish on East Point Seafood’s farm are examples of private goods. Public goods A public good is both nonrival and nonexcludable. A public good can be consumed simultaneously by everyone, and no one can be excluded from its benefits. National defense is the best example of a public good. Public Choices 169。 2020 Pearson AddisonWesley Public Choices Mixed Goods and Externalities Mixed goods don’t fit neatly into the fourfold classification. A mixed good is a private good the production or consumption of which creates an externality. An externality is a cost (external cost) or a benefit (external benefit) that arises from the production or consumption of a