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S ECTION A: S TRATEGIC DECISION MAKING IN IMPERFECTLY COMPETITIVE MARKETS Outline of sessions Monopoly, oligopoly collusion and entry deterrence market.

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Presentation on theme: "S ECTION A: S TRATEGIC DECISION MAKING IN IMPERFECTLY COMPETITIVE MARKETS Outline of sessions Monopoly, oligopoly collusion and entry deterrence market."— Presentation transcript:

1 S ECTION A: S TRATEGIC DECISION MAKING IN IMPERFECTLY COMPETITIVE MARKETS Outline of sessions Monopoly, oligopoly collusion and entry deterrence market failures due to monopoly power and oligopoly collusion Revision simultaneous moves games – Nash equilibrium, dominant strategy equilibrium Prisoners dilemma, collusion and trade – more game theory, examples of markets where there is collusion Entry barriers/deterrence, credible threats– sequential games Case studies: Hawaiian Airlines, General Electric Company and Westinghouse Electric Company, Washington Post

2 S UGGESTED READING For the theory and the business applications: Allen et al Managerial Economics 7th edition. Norton. Parts 4 and 6 Kreps, D. M Microeconomics for Managers. Norton. Chapters Frank, R. H Microeconomics and behaviour. McGraw Hill. Chapters Wall,S., Minocha, S. and Rees, B International Business, Pearson. Chapter 7 Dixit, A., Reiley, D. H. and Skeath, S Games of Strategy, 3 rd Edition, Norton Rasmusen, E Games and Information, Blackwell. Chapters 1-2, 4-5 Carmichael, F A Guide to Game Theory, Pearson. Chapters 1-4, 7-8 For the league sports application: Grimes, P, Register, C. and Sharp, A Economics of Social Issues, McGraw Hill. Chapter 9 Plus sports economics texts of which there are many e.g. Sandy, Sloane and Rosentraub, The Economics of Sports, Palgrave. Chapters 1-6

3 O BJECTIVES By the end of section A you should be able to: Explain why collusion between firms is in general likely to be undesirable from the perspective of consumers. Explain why game theorists predict that collusion between oligopolists is likely to be fragile unless there is some possibility of repetition in the longer term and/or a large swing producer or collusion is in the interests of consumers. ( Collusion) Use game theory to explain what is implied by a credible threat to fight the entry of a new firm into an industry. Use your analysis to show how an incumbent monopolist (or oligopolistic cartel) might be able to deter entry even though fighting entry is costly. ( Entry barriers and entry deterrence) Use case studies to illustrate how firms collude, erect entry barriers and fight entry and to explain the idea of a credible threat.


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