AP微观经济学课程.pptVIP

The kinked demand curve model of oligopoly The kinked demand curve model of oligopoly is based on the assumption that each firm believes that if it raises its price, others will not follow, but if it cuts its price, other firms will cut theirs. Between range A and B, the optimum Q is constant, cant determine price Qk is the profit-maximizing level of output and the price at which the kink is located is the firm’s profit maximizing price. Shortcoming: it is incomplete because what determines the market price (where the kink is located) is outside the scope of the model. Game theory Nash equilibrium is reached when the choices of all firms are such that there is no other choice that makes any firm better off (increases profits or decrease loss) Prisoners’ Dilemma is a game that illustrates that the best course of action for an oligopoly firm, when engaging in collusion with another oligopoly firm, is to cheat. Best overall outcome is for both to remain silent and get sentences of six months. But it is not equilibrium. The Nash equilibrium is for both prisoners to confess, and for each to get a sentence of two years. Confess/confess is the Nash equilibrium since neither prisoner can unilaterally reduce his sentence by changing to silence. Price discrimination works best in the following conditions: Consumers have different price elasticity. Higher price for lower-elasticity consumers. There is no chance for the resale of the product. As in a monopoly market, the profit of the firm reaches the maximum when the firm provides lower price to higher-elasticity consumers and higher price to lower-elasticity consumers. * Under regulated monopoly 1: ATC intersects the demand curve where P=PB and Q=QB. Here, the economic profit is zero. This becomes more efficient than under unregulated monopoly as regulated price is lower and output is higher. Under regulated monopoly 2: MC intersects the demand curve where P=PC and Q=QC. Here, the economic profit is negative. This become