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CHAPTER TWELVE-OLIGOPOLY - Coggle Diagram

- - - - firm sets price/ output strategically- depending on competitors
      - firms are doing the best they can- have no reason to change price/output
      - nash equilibrium
        
        each firm does the best it can given its competitors actions
        
        e.g -> cournot equilibrium- each firm doing they best they can given its rival -> no incentive to change
    - - market where two firms compete with eachother
    - - oligoply where each firm produce a homogeneous good- output of competitor fixed- all firms decide how much to produce
      - two firms produce goods that are perfect substitutes
      - barriers to entry exist
      - firms choose output
      - each firm believes their rival will hold output constant if they change their own- MR depends on output of rival
      - best-response function
        
        increase in firms 2's output-> decrease in the profit-maximizing quantity for firm 1
        
        firm 1 -> schedule of Q1 needed o maximize profits for each quantity of Q2
      - cournot equilibrium
        
        each firm produces the output that maximizes profits given rival's output
        
        where best-response functions intersect
        
        neither firm has incentive to change
        
        each firm sticks to current output
    - - two firms serve many customers
      - homogeneous products
      - MC the same
      - barriers to entry
      - firm 1 is the leader- commits to an output before the other
        
        first mover advantage
      - firm 2 is the follower- chooses output to maximize profits given leader's output
      - illustrates for commitment can enhance profits in strategic enviornments
      - leader produces same output as monopolist > cournot equilibrium, follower produces less output than courenot equilbrium