【正文】 best they can and have no incentive to change their output or price ?All firms assume petitors are taking rival decisions into account ? Nash Equilibrium ?Each firm is doing the best it can given what its petitors are doing ? We will focus on duopoly ?Markets in which two firms pete 169。2020 Pearson Education, Inc. Chapter 12 25 Firm 2’s Reaction Curve Q*2(Q1) Firm 2’s reaction curve shows how much it will produce as a function of how much it thinks Firm 1 will produce. Reaction Curves and Cournot Equilibrium Q2 Q1 25 50 75 100 25 50 75 100 Firm 1’s Reaction Curve Q*1(Q2) x x x x Firm 1’s reaction curve shows how much it will produce as a function of how much it thinks Firm 2 will produce. The x’s correspond to the previous model. 169。2020 Pearson Education, Inc. Chapter 12 29 The Linear Demand Curve ?An Example of the Cournot Equilibrium ?Two firms face linear market demand curve ?We can pare petitive equilibrium and the equilibrium resulting from collusion ?Market demand is P = 30 Q ?Q is total production of both firms: Q = Q1 + Q2 ?Both firms have MC1 = MC2 = 0 169。 F i r m169。2020 Pearson Education, Inc. Chapter 12 35 Profit Maximization w/ Collusion ?Contract Curve ?Q1 + Q2 = 15 ? Shows all pairs of output Q1 and Q2 that maximize total profits ?Q1 = Q2 = ? Less output and higher profits than the Cournot equilibrium 169。2020 Pearson Education, Inc. Chapter 12 38 First Mover Advantage – The Stackelberg Model ?Firm 1 ?Must consider the reaction of Firm 2 ?Firm 2 ?Takes Firm 1’s output as fixed and therefore determines output with the Cournot reaction curve: Q2 = 15 189。2020 Pearson Education, Inc. Chapter 12 41 First Mover Advantage – The Stackelberg Model ?Conclusion ?Going first gives Firm 1 the advantage ?Firm 1’s output is twice as large as Firm 2’s ?Firm 1’s profit is twice as large as Firm 2’s ?Going first allows Firm 1 to produce a large quantity. Firm 2 must take that into account and produce less unless it wants to reduce profits for everyone. 169。2020 Pearson Education, Inc. Chapter 12 45 Price Competition – Bertrand Model ?Nash equilibrium is petitive output since have incentive to cut prices ?Both firms set price equal to MC ?P = MC。2020 Pearson Education, Inc. Chapter 12 46 Price Competition – Bertrand Model ?Why not charge a different price? ?If charge more, sell nothing ?If charge less, lose money on each unit sold ?The Bertrand model demonstrates the importance of the strategic variable ?Price versus output 169。2020 Pearson Education, Inc. Chapter 12 50 Price Competition – Differentiated Products ?Firms set prices at the same time 20212 20)212( 20$ :1 Fir m21211211111?????????PPPPPPPQP?169。 F i r m p r i c e m a x i m i z i n g p r o f i t s1 F i r m?169。2020 Pearson Education, Inc. Chapter 12 55 A Pricing Problem: Procter amp。2020 Pearson Education, Inc. Chapter 12 56 A Pricing Problem: Procter amp。G’s, Unilever’s, and Kao’s prices respectively 169。2020 Pearson Education, Inc. Chapter 12 58 Pamp。2020 Pearson Education, Inc. Chapter 12 60 Competition Versus Collusion: The Prisoners’ Dilemma ?Nash equilibrium is a noncooperative equilibrium: each firm makes decision that gives greatest profit, given actions of petitors ?Although collusion is illegal, why don’t firms cooperate without explicitly colluding? ?Why not set profit maximizing collusion price and hope others follow? 169。 F i r m0$ an d 20$1221??????????????PPPPQPPQVCFC169。2020 Pearson Education, Inc. Chapter 12 66 Competition Versus Collusion: The Prisoners’ Dilemma ?An example in game theory, called the Prisoners’ Dilemma, illustrates the problem oligopolistic firms face ?Two prisoners have been accused of collaborating in a crime ?They are in separate jail cells and cannot municate ?Each has been asked to confess to the crime 169。G $12, $12 $29, $11 $3, $21 $20, $20 Payoff Matrix for the Pamp。2020 Pearson Education, Inc. Chapter 12 71 Observations of Oligopoly Behavior 2. In other oligopoly markets, the firms are very aggressive and collusion is not possible a. Firms are reluctant to change price because of the likely response of their petitors b. In this case, prices tend to be relatively rigid 169。2020 Pearson Education, Inc. Chapter 12 75 The Kinked Demand Curve $/Q Quantity MR D If the producer lowers price, the petitors will follow and the demand will be inelastic. If the producer raises price, the petitors will not and the demand will be elastic. 169。2020 Pearson Education, Inc. Chapter 12 79 The Dominant Firm Model ?Dominant firm must determine its demand curve, DD ?Difference between market demand and supply of fringe firms ?To maximize profits, dominant firm produces QD where MRD and MCD cross ?At P*, fringe firms sell QF and total quantity sold is QT = QD + QF 169。2020 Pearson Education, Inc. Chapter 12 83 Cartels – Conditions for Success 1. Stable cartel anization must be formed – price and quantity settled on and adhered to ? Members have different costs, assessments of demand and objectives ? Tempting to cheat by lowering price to capture larger market share 169。2020 Pearson Education, Inc. Chapter 12 87 Cartels ?About OPEC ?Very low MC ?TD is inelastic ?NonOPEC supply is inelastic ?DOPEC is relatively inelastic 169。2020 Pearson Education, Inc. Chapter 12 91 The Cartelization of Intercollegiate Athletics 1. Large number of firms (colleges) 2. Large number of consumers (fans) 3. Very high profits 169。2020 Pearson Education, Inc. Chapter 12 96 Topics to be Discussed ?Sequential Games ?Threats, Commitments, and Credibility ?Entry Deterrence ?Bargaining Strategy ?Auctions