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GROUP NO. # 10
MEMBERS:
Roll Nos.
Abhishek Verma 105
Abhishek Patil 085
Gauri Patil 091
Namrata Verma 065
Ravi Prakash Singh 090
Santosh Nair 084
Vikrant Gole 075
INDEX
Introduction
Examples of Oligopoly
Characteristics of Oligopoly
Determinants of Oligopoly
Forms of Oligopoly
Dominant Strategy
Prisoner’s Dilemma
Calculation of HHI
HHI = s12 + s22 + …..sn
where S
i = the i th
firms market share,
n= number of firms in industry
HERFINDAHL-HIRSCHMAN INDEX(HHI)
Examples
1) For an industry with only 1 firm, (monopoly),
what would be the HHI?
2) 1000
3) 100
FORMS OF OLIGOPOLY
Oligopoly can be classified into several forms. Some
of the important forms of Oligopoly are as follows:
Balanced & Unbalanced Oligopoly
Balanced Oligopoly
An oligopoly in which the sales of the leading
firms are distributed fairly evenly among them.
Unbalanced Oligopoly
An oligopoly in which the sales of the leading
firms are distributed unevenly among them.
FORMS OF OLIGOPOLY
Perfect and Imperfect Oligopolies
If the product of the rival firm are
homogenous then it is Perfect Oligopoly, if the
product are differentiated it is Imperfect
Oligopoly.
D1
Quantity MR1
THE KINKED DEMAND CURVE
D2
MR2
D1
Quantity MR1
THE KINKED DEMAND CURVE
Rivals tend to
follow a price cut
Price
D2
MR2
D1
Quantity MR1
THE KINKED DEMAND CURVE
Rivals tend to
follow a price cut
or ignore a
price increase
Price
D2
MR2
D1
Quantity MR1
THE KINKED DEMAND CURVE
Effectively creating
a kinked demand curve
Price
D2
MR2
D1
Quantity MR1
THE KINKED DEMAND CURVE
Effectively creating
a kinked demand curve
Price
D
Quantity
THE KINKED DEMAND CURVE
Effectively creating
a kinked demand curve
MC1
MR2
Price
MC2
D
Quantity MR1
THE KINKED DEMAND CURVE
Profit maximization
MR = MC occurs
at the kink.
MC1
MR2
Price
MC2
D
Quantity MR1
THE KINKED DEMAND CURVE
(EXAMPLE)
After the initial price of $6, the
firm has two options:
Increase price: the other
firms will not change their
prices and quantity will
decrease by a large amount
(elastic)
Decrease price: the other
firms will decrease their
prices, so quantity will
increase only by a small
amount (inelastic)
THE KINKED DEMAND CURVE
(EXAMPLE)
The demand curve of the
typical firm has a kink at the
prevailing price. It is
relatively flat for higher
prices, and relatively
steep for lower prices.
There is little evidence,
however, that oligopolistic
firms really act this way—
that firms will not go along
with a higher price but
only match a lower price.
THE KINKED DEMAND CURVE
(EXAMPLE)
•The demand curve of the
typical firm has a kink at the
prevailing price. It is
relatively flat for higher
prices, and relatively steep for
lower prices.
Game Tree
Two firms
coordinating price
decisions choose
the high price.
High Low
A $12 B $15
VickyFreight’s Price Strategy
High
$12 $6
C $6 D $8
Low
$15 $8
A GAME-THEORY OVERVIEW USING
PAYOFF MATRIX
SantoshFreight’s Price Strategy
High Low
Combined
High Profit
$12 $6
C $6 D $8
Low
$15 $8
A GAME-THEORY OVERVIEW USING
PAYOFF MATRIX
SantoshFreight’s Price Strategy
High Low
Actions
High Stimulate
$12 $6 Response
C $6 D $8
Low
$15 $8
A GAME-THEORY OVERVIEW USING
PAYOFF MATRIX
SantoshFreight’s Price Strategy
High Low
Actions
High Stimulate
$12 $6 Response
Gravitating
C $6 D $8 to the
Low Worst Case
$15 $8
A GAME-THEORY OVERVIEW USING
PAYOFF MATRIX
SantoshFreight’s Price Strategy
High Low
Collusion
A $12 B $15 Invites a
VickyFreight’s Price Strategy
Different
High Solution.
$12 $6
C $6 D $8
Low
$15 $8
A GAME-THEORY OVERVIEW USING
PAYOFF MATRIX
SantoshFreight’s Price Strategy
High Low
Collusion
A $12 B $15 Invites a
VickyFreight’s Price Strategy
Different
High Solution.
$12 $6
C $6 D $8
Low
$15 $8
A GAME-THEORY OVERVIEW USING
PAYOFF MATRIX
SantoshFreight’s Price Strategy
High Low
Collusion
A $12 B $15 Invites a
VickyFreight’s Price Strategy
Different
High Solution.
$12 $6
But, the
incentive
C $6 D $8
to cheat
is very real.
Low
$15 $8
THE DUOPOLISTS’ DILEMMA
Price leadership is an
implicit agreement under
which firms in a market
choose a price leader,
observe that firm’s price,
and match it.
PRICE LEADERSHIP IN OLIGOPOLY
The problem with an implicit pricing agreement
is that price signals sent by the leader may be
misinterpreted.
Firms could interpret a price cut in two ways:
Greater profits
possible!!
TYPES OF PRICE DISCRIMINATION
Perfect Price Discrimination
Charge each buyer the highest price they are
willing to pay.
Groups
http://www.census.gov
http://www.antitrust.org
http://www.opec.org