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Introduction to Oligopoly

In this module, explore the complexities of oligopoly, where few producers dominate the market. Understand the incentive structures that drive oligopolists to often act against their combined profit maximization. Discover how collusion can lead to restricted output and higher prices, while also examining the challenges of maintaining such agreements due to inherent cheating incentives. Learn about key concepts like the Herfindahl-Hirschman Index (HHI), as well as price versus quantity competition through Bertrand and Cournot models, and the resulting economic profits.

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Introduction to Oligopoly

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  1. Module Micro: Econ: 28 64 Introduction to Oligopoly • KRUGMAN'S • MICROECONOMICS for AP* Margaret Ray and David Anderson

  2. What you will learnin thisModule: • Why oligopolists have an incentive to act in ways that reduce their combined profit. • Why oligopolies can benefit from collusion.

  3. Understanding Oligopoly • “Few” producers • Remember HHI • Interdependence

  4. Collusion and Competition • Oligopoly firms can increase their profits by colluding to restrict output or raise price. • Maintaining collusive agreements is difficult because there is an incentive to cheat • Collusion is illegal

  5. Price versus Quantity Competition • Bertrand • Price competition • Competitive outcome • Cournot • Quantity competition • Economic profits

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