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7: Imperfect Competition and Strategic Interactions
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- Markets vary in ways that affect competition and pricing. In some markets, competition is fierce. In others, it is light. Some firms have broad discretion in setting prices, while others face take-it-or-leave-it market prices. Pricing and competition depend on the structural characteristics of the market. Economists classify markets as monopolies, oligopolies, monopolistically competitive, or perfectly competitive depending on the characteristics of selling firms in the market. A brief overview of each market structure is as follows:
- Describe and explain characteristics of different market structures on the selling side of the market.
- Use the MR = MC profit maximizing condition to find profit maximizing solutions under different market structures.
- Explain the strategic interactions in duopoly models, distinguish between Cournot and Bertrand models of duopoly, and explain how each is an example of the prisoners’ dilemma
- Explain the folk theorem and the ability of firms to avoid prisoners’ dilemma outcomes in price competition over time.
- Understand the economic welfare implications of imperfectly competitive market structures relative to the perfectly competitive benchmark.
- 7.1: Overview and Objectives
- 7.2: Considerations in Classifying a Market
- 7.3: Marginal Revenue for Imperfectly Competitive Markets
- 7.4: Profit Maximization for a Monopolist or Monopolistically Competitive Firm
- 7.5: Profit Maximization in an Oligopoly
- 7.6: Concluding Comments: Effects of Imperfect Competition on Economic Welfare
- 7.7: References
- 7.8: Problem Sets