Market structures and organization PERFECT IMPERFECT OMPETITION MPETITION Decision: quantity produced DUOPOLY MONOPOLY (each firm faces residual residual demand) demand curve) (same as Dupoly) STATIC DYNAMIC NONCOOPERATIVE COOPERATIVE CARTEL: COLLUSION (colludes on price or quantity) SEQUENTIAL MOVES SIMULTANEOUS REPEATEI ision: price or quantity Decision: price or quantity d= discriminating ND= nondiscriminating COURNOT BERTRAND
Market structures and organization PERFECT COMPETITION IMPERFECT COMPETITION (price taking behavior ) Decision: quantity produced OLIGOPLY DUOPOLY MONOPOLY (each firm faces (each firm faces (facing market residual demand) residual demand) demand curve) Decision: price or quantity (same as Dupoly) STATIC DYNAMIC ND D ND D NONCOOPERATIVE COOPERATIVE CARTEL: COLLUSION (colludes on price or quantity) SEQUENTIAL MOVES SIMULTANEOUS MOVES REPEATED GAME (leader-follower models) Decision: price or quantity Decision: price or quantity COURNOT BERTRAND Decision: quantity Decision: price D = discriminating, ND= nondiscriminating
Agenda: Broadly 1. Discussion of background microeconomics and game theory for the study of the market structures 2. Start with Perfect competition and monopoly 3. Build up by relaxing assumptions of these models one or some at a time. to keep things tractable)
Agenda: Broadly 1. Discussion of background microeconomics and game theory for the study of the market structures 2. Start with Perfect competition and Monopoly 3. Build up by relaxing assumptions of these models one or some at a time. (To keep things tractable)
Background microeconomics and game Theory (Oz Shy book Chapters 2 and 3) Game Theory (here we only study noncooperative games. Strategic interaction Interaction between two agents where the payoffs as a result of one s own action depends also on what others are doing. ( Example Firm chooses a price--profit also depends on the price chosen by the competitor Strategic interaction represented by a game
Background Microeconomics and Game Theory (Oz Shy book Chapters 2 and 3) Game Theory (Here we only study noncooperative games.) Strategic interaction: Interaction between two agents where the payoffs as a result of one’s own action depends also on what others are doing. (Example: Firm chooses a price--profit also depends on the price chosen by the competitor. Strategic interaction represented by a game
Two representations of game Normal form(simultaneous move games) Simultaneity in the sense that when one player chooses his action the action taken by the other player(s)unknown (Not necessary that players move at same point in time) Extensive form game( sequential move games) Sequential in the sense that before one player moves he observes the action chosen by other player(s)
Two representations of game Normal form (simultaneous move games): Simultaneity in the sense that when one player chooses his action the action taken by the other player(s) unknown. (Not necessary that players move at same point in time) Extensive form game (sequential move games): Sequential in the sense that before one player moves he observes the action chosen by other player(s)
Normal form game TThree elements ) a set of players 1=(1, 2,,N Each Players action set Ai (for example if the firm chooses price: Action set is any price greater than zero) Each player's payoff function, i.e. payoff as a result of the actions by all the agents
Normal form game: Three elements A set of players I={1,2,…,N} Each Player’s action set Ai (for example if the firm chooses price: Action set is any price greater than zero) Each player’s payoff function, i.e. payoff as a result of the actions by all the agents