Mankiw PrinciplesOfEconomics 10e PPT CH18 Oligopoly

Principles of
Economics, 10e
Chapter 18: Oligopoly
Mankiw, Principles of Economics, Tenth Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part. 1
Oligopoly
• If you play tennis, you have probably used balls from one of four
producers: Penn, Wilson, Prince, or Dunlop Slazenger (two brands from
the same company).
• These four firms make almost all the tennis balls sold in the United
States.
• Together they determine the quantity of tennis balls produced and, given
the market demand curve, the price at which tennis balls are sold.
Oligopoly
• The market for tennis balls is an example of an oligopoly. The essence of

an oligopolistic market is that there are only a few sellers.
• As a result, the actions of any one seller in the market can have a large
impact on the profits of all the other sellers. Oligopolistic firms are
interdependent in a way that competitive firms are not.
• Our goal in this chapter is to see how this interdependence shapes the firms’
behavior and what problems it raises for public policy.
Oligopoly
• The analysis of oligopoly offers an opportunity to introduce game theory,

the study of how people behave in strategic situations.
• By “strategic” we mean a situation in which a person, when choosing
among alternative courses of action, must consider how others might
respond to the action she takes.
• Strategic thinking is crucial not only in checkers, chess, and tic-tac-toe but
also in many business decisions. Because oligopolistic markets have only
a small number of firms, each firm must act strategically.
Oligopoly
• Each firm knows that its profit depends on both how much it produces and
how much the other firms produce.
• In making its production decision, each firm in an oligopoly should
consider how its decision might affect the production decisions of the
other firms in the market.
• Game theory is not necessary for understanding competitive or monopoly
markets.
Oligopoly
• In a market that is either perfectly competitive or monopolistically

competitive, each firm is so small compared to the market that strategic
interactions with other firms are not important.
• In a monopolized market, strategic interactions are absent because the
market has only one firm.
Oligopoly
• But, as we will see, game theory is useful for understanding oligopolies and
many other situations in which a small number of players interact with
one another.
• Game theory helps explain the strategies that people choose, whether they
are playing tennis or selling tennis balls.
Chapter Objectives (1 of 2)
By the end of this chapter, you should be able to:

• Describe the characteristics of an oligopoly.
• Explain how production decisions are made in a duopoly market.
• Explain how collusion impacts production decisions in an oligopolistic market.
• Identify the Nash equilibrium, given a payoff matrix.
• Determine if a game represented by a payoff matrix is an example of the prisoners'
dilemma.
Chapter Objectives (2 of 2)
• Identify the dominant strategy, if present, for each player, given a payoff matrix.
• Given a scenario, determine which antitrust law is violated.
• Given an example of a business practice, identify it as resale price maintenance,
predatory pricing, or tying.
18-1
Markets with Only a Few Sellers
Oligopoly
• Oligopoly*
• A market structure in which only a few sellers offer similar or identical products
• Game theory*
• The study of how people behave in strategic situations
*Words accompanied by an asterisk are key terms from the chapter.
• Because an oligopolistic market has only a small group of sellers, a key

feature of oligopoly is the tension ( 緊張 ) between cooperation ( 合作 )
and self-interest ( 自身利益 ).
• Oligopolists are best off ( 最好的 ) when they cooperate and together act
like a monopolist—producing a small quantity of output and charging a
price above marginal cost.
• Yet because each oligopolist cares only about its own profit, there are
powerful incentives at work that hinder ( 阻礙 ) a group of firms from
maintaining the cooperative outcome.
A Duopoly Example
• Duopoly ( 雙頭寡占 ) is an oligopoly with only two members

• For example, Jack and Jill own wells that produce water safe for drinking
• Marginal cost of water is zero
• Total revenue = Total profit
A Duopoly Example
• To understand the behavior of oligopolies, let’s consider an oligopoly with

only two members, called a duopoly ( 雙頭寡占 ).
• Duopoly is the simplest type of oligopoly. Oligopolies with three or more
members face the same problems as duopolies, so we do not lose much by
starting with the simpler case.
• Imagine a town in which only two residents, Jack and Jill, own wells that
produce water safe for drinking.
A Duopoly Example
• Each Saturday, Jack and Jill decide how many gallons of water to pump,
bring the water to town, and sell it for whatever price the market will bear.
• To keep things simple, suppose that Jack and Jill can pump as much water
as they want without cost. That is, the marginal cost of water equals zero.
• Table 1 shows the town’s demand schedule for water.
Table 1 The Demand Schedule for Water
Quantity Price Total Revenue (and total profit)
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
A Duopoly Example
• The first column shows the total quantity demanded, and the second
column shows the price.
• If the two well owners sell a total of 10 gallons of water, water goes for
$110 a gallon. If they sell a total of 20 gallons, the price falls to $100 a
gallon.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
A Duopoly Example
• And so on. If you graphed these two columns of numbers, you would get a
standard downward-sloping demand curve.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
A Duopoly Example
• The last column in Table 1 shows total revenue from the sale of water.
• It equals the quantity sold times the price. (Q X P)
• Because there is no cost to pumping water, the total revenue of the two
producers equals their total profit.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
A Duopoly Example
• Let’s now consider how the organization of the town’s water industry
affects the price of water and the quantity sold.
Competition, Monopolies, and Cartels
• If water market is perfectly competitive

• Price = Marginal cost
• Equilibrium quantity is 120 gallons
• Quantity is efficient
• If water market is a monopoly
• Price > Marginal cost
• Profit is maximized at a quantity of 60 gallons and a price of $60 a gallon
• Quantity is lower than the efficient quantity
Collusion and Cartels
• Collusion ( 共謀 )*
• Agreement among firms in a market about quantities to produce or prices to charge
• Cartel ( 卡特爾 )*
• Group of firms acting in unison ( 一致 )
• Before considering the price and quantity of water that results from the
duopoly of Jack and Jill, let’s briefly discuss the outcomes that would result
if the water market were either perfectly competitive or monopolistic.
• These two polar cases are natural benchmarks.
• If the market for water were perfectly competitive, the production
decisions of each firm would drive price to equal marginal cost.
• Because we have assumed that the marginal cost of pumping additional

water is zero, the equilibrium price of water under perfect competition
would be zero as well.
• The equilibrium quantity would then be 120 gallons.
• The price of water would reflect the cost of producing it, and the efficient
quantity of water would be produced and consumed.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
• Now consider how a monopoly would behave. Table 1 shows that total
profit is maximized at a quantity of 60 gallons and a price of $60 a
gallon.
• A profit-maximizing monopolist, therefore, would produce this quantity
and charge this price.
• As is standard for monopolies, price would exceed marginal cost. The
result would be inefficient because the quantity of water produced and
consumed would fall short of the socially efficient level of 120 gallons.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
• What outcome should we expect from our duopolists?

• One possibility is that Jack and Jill get together and agree on the quantity
of water to produce and the price to charge for it.
• Such an agreement among firms over production and price is called
collusion ( 共謀 ), and the group of firms acting in unison is called a
cartel ( 卡特爾 ).
• Once a cartel is formed, the market is in effect served by a monopoly

and we can apply our analysis from Chapter 16.
• That is, if Jack and Jill collude, they will agree on the monopoly outcome
because that outcome maximizes their total profit.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
• Our two producers produce a total of 60 gallons, which sell at a price of

$60 a gallon. Once again, price exceeds marginal cost, and the outcome is
socially inefficient.
• A cartel must agree not only on the total level of production but also on
the amount produced by each member.
• In our case, Jack and Jill must agree on how to split the monopoly
production of 60 gallons.
• Each member of the cartel will want a larger share of the market
because a larger market share means larger profit.
• If Jack and Jill agree to split the market equally, each produces 30
gallons, the price is $60 a gallon, and each earns a profit of $1,800.
Active Learning 1: Collusion in Smallville?
Duopoly outcome with collusion: Each gas station P Q

agrees to sell Q = 2,200 at P = $7, each earns profit $0 10,000
= $13,200
1 9,200
A. If Casey’s cheats on the agreement and plans to 2 8,400
sell Q = 3,000, what happens to the market 3 7,600
price? Calculate Casey’s profit.
4 6,800
B. Is it in Casey’s interest to cheat on the 5 6,000
agreement? 6 5,200
C. If both gas stations cheat and plan to sell Q = 7 4,400
3,000 each, calculate their profits. 8 3,600
9 2,800
Active Learning 1: Answers
• If both stick to the agreement, each earns profit = P Q

$13,200 $0 10,000
A. If Casey’s cheats: Q1 = 3,000, P = $6 1 9,200
• Market quantity = 3,000 + 2,200 = 5,200 2 8,400
3 7,600
• Casey’s profit = 3,000 × (6 − 1) = $15,000
4 6,800
B. Yes. Higher profit! 5 6,000
C. If both cheat: Q1 = Q2 = 3,000, P = $5 6 5,200
• Market quantity = 6,000 7 4,400

8 3,600
• Each firm’s profit = 3,000 × (5−1) = $12,000
9 2,800
The Equilibrium for an Oligopoly (1 of 2)
• Oligopolists cannot form cartels and earn monopoly profits

• Squabbling ( 爭吵 ) among cartel members over how to divide the profit can make
agreement among members difficult
• Antitrust laws ( 反托拉斯法 ) prohibit explicit agreements among oligopolists
• Even talking about pricing and production restrictions with competitors can be a
criminal offense
The Equilibrium for an Oligopoly (2 of 2)
• In the absence of a binding agreement, monopoly outcome is unlikely

• By pursuing their individual self-interest when deciding how much to produce, the
duopolists
• Produce a total quantity greater than the monopoly quantity
• Charge a price lower than the monopoly price
• Earn total profit less than the monopoly profit
Individual Oligopoly Outcome
• When firms in an oligopoly individually choose production to maximize profit

• Produce a quantity greater than the level produced by a monopoly and less than the
level produced under perfect competition
• Oligopoly price is less than the monopoly price but greater than the competitive
price (which equals marginal cost)
Nash Equilibrium
• Nash equilibrium ( 納許均衡 )*

• A situation in which economic actors interacting with one another each choose their
best strategy given the strategies that all the other actors have chosen
• 彼此相互影響的經濟參與者，在給定其他人所選擇的策略下，每個人選擇他們
最佳策略的情況。
• For example, Jack and Jill increase market share, each produces 40 gallons, the price is
$40 a gallon, and each earns a profit of $1,600

The Equilibrium for an Oligopoly
• Oligopolists would like to form cartels and earn monopoly profits, but that
is often impossible.
• Squabbling ( 爭吵 ) among cartel members over how to divide the profit
in the market can make agreement among members difficult.
• In addition, antitrust laws prohibit explicit agreements among oligopolists

as a matter of public policy.
• Even talking about pricing and production restrictions with competitors can
be a criminal offense ( 刑事犯罪 ).
• Let’s therefore consider what happens if Jack and Jill decide separately how
much water to produce.
• At first, one might expect Jack and Jill to reach the monopoly outcome on
their own because this outcome maximizes their joint profit.
• In the absence of a binding agreement, however, the monopoly outcome is
unlikely.
• To see why, imagine that Jack expects Jill to produce only 30 gallons
(half of the monopoly quantity).
• Jack would reason as follows:

• I could produce 30 gallons as well. In this case, a total of 60 gallons of
water would be sold at a price of $60 a gallon. My profit would be $1,800
(30 gallons × $60 a gallon).
• Alternatively, I could produce 40 gallons. In this case, a total of
70 gallons of water would be sold at a price of $50 a gallon. My profit
would be $2,000 (40 gallons × $50 a gallon). Even though total profit in
the market would fall, my profit would be higher because I would have a
larger share of the market.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500 (2,000 + 1,500)
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
• Of course, Jill might reason the same way. If so, Jack and Jill would each
bring 40 gallons to town. Total sales would be 80 gallons, and the price
would fall to $40.
• Thus, if the duopolists individually pursue their own self-interest when
deciding how much to produce, they produce a total quantity greater
than the monopoly quantity, charge a price lower than the monopoly
price, and earn total profit less than the monopoly profit.
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500 (2,000 + 1,500)
80 40 3,200 (1,600 + 1,600)
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
• Although the logic of self-interest increases the duopoly’s output above the
monopoly level, it does not push the duopolists all the way to the
competitive allocation.
• Consider what happens when each duopolist produces 40 gallons.
• The price is $40, and each duopolist makes a profit of $1,600. In this case,
Jack’s self-interested logic leads to a different conclusion:
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 (40 + 40) 40 3,200 (1,600 + 1,600)
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
• “Right now, my profit is $1,600. Suppose I increase my production to 50

gallons. In this case, a total of 90 gallons of water would be sold, and the
price would be $30 a gallon.
• Then my profit would be only $1,500. Rather than increasing production
and driving down the price, I am better off keeping my production at 40
gallons.”
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 (40 + 40) 40 3,200 (1,600 + 1,600)
90 (50 + 40) 30 2,700 (1,500 + 1,200)
100 20 2,000
110 10 1,100
120 0 0
• The outcome in which Jack and Jill each produce 40 gallons looks like
some sort of equilibrium.
• In fact, this outcome is called a Nash equilibrium. (It is named after Nobel
Prize–winning mathematician and economic theorist John Nash, whose
life was portrayed in the book and movie A Beautiful Mind.)
• John Nash ： A Beautiful Mind ( 美麗境界 )
• A Nash equilibrium is a situation in which economic actors interacting with

one another each choose their best strategy given the strategies that the
others have chosen.
• In this case, given that Jill is producing 40 gallons, the best strategy for
Jack is also to produce 40 gallons.
• Similarly, given that Jack is producing 40 gallons, the best strategy for Jill
is also to produce 40 gallons.
• Once they reach this Nash equilibrium, neither Jack nor Jill has an
incentive to make a different decision.
• This example illustrates the tension ( 緊繃關係 ) between cooperation
( 合作 ) and self-interest ( 自利 ). Oligopolists would be better off
cooperating and reaching the monopoly outcome.
• Yet because they each pursue their own self-interest, they do not end up
reaching the monopoly outcome and, thus, fail to maximize their joint
profit. Each oligopolist is tempted to raise production and capture a
larger share of the market.
• As each of them tries to do this, total production rises, and the price falls.
• At the same time, self-interest does not drive the market all the way to the
competitive outcome.
• Like monopolists, oligopolists are aware that increasing the amount they
produce reduces the price of their product, which in turn affects profits.
• Therefore, they stop short of following the competitive firm’s rule of
producing up to the point where price equals marginal cost.
• In summary, when firms in an oligopoly individually choose production

to maximize profit, they produce a quantity of output greater than the
level produced by monopoly and less than the level produced under
perfect competition.
• The oligopoly price is less than the monopoly price but greater than the
competitive price (which equals marginal cost).
Active Learning 2: Duopoly Equilibrium in
Smallville
FC = 0 and MC = $1 P Q
$0 10,000
If each firm sells Q = 3,000, P = $5, and
1 9,200
each firm’s profit is $12,000
2 8,400
A. Should Casey’s increase Q to 3,800? 3 7,600
4 6,800
B. Should 7-eleven increase Q to 3,800? 5 6,000
6 5,200
7 4,400
8 3,600
9 2,800
A. If Casey’s increases Q to 3,800 P Q

$0 10,000
• Market Q = 6,800, P = $4 1 9,200
• Casey’s profit = 3,800 × (4−1) = 2 8,400
$11,400 3 7,600
4 6,800
• Casey’s earns a lower profit at Q =
5 6,000
3,800 than at Q = 3,000
6 5,200
B. The same is true for 7-eleven 7 4,400
8 3,600
9 2,800
How the Size of an Oligopoly Affects the Market
Outcome
• We can use the insights from this analysis of duopoly to discuss how the
size of an oligopoly is likely to affect the outcome in a market.
• Suppose, for instance, that John and Joan suddenly discover water
sources on their property and join Jack and Jill in the water oligopoly.
Outcome
• The demand schedule in Table 1 remains the same, but now more producers
are available to satisfy this demand. How would an increase in the number
of sellers from two to four affect the price and quantity of water in the
town?
0 gallons $120 $0
10 110 1,100
20 100 2,000
30 90 2,700
40 80 3,200
50 70 3,500
60 60 3,600
70 50 3,500
80 40 3,200
90 30 2,700
100 20 2,000
110 10 1,100
120 0 0
Outcome
• If the sellers of water could form a cartel, they would once again try to
maximize total profit by producing the monopoly quantity and charging the
monopoly price.
• Just as when there were only two sellers, the members of the cartel would
need to agree on production levels for each member and find some way
to enforce the agreement. As the cartel grows larger, however, this
outcome is less likely.
• Reaching and enforcing an agreement becomes more difficult as the size
of the group increases.
Outcome
• If the oligopolists do not form a cartel—perhaps because the antitrust laws
prohibit it—they must each decide on their own how much water to
produce.
• To see how the increase in the number of sellers affects the outcome,
consider the decision facing each seller.
Outcome
• At any time, each well owner has the option to raise production by one
gallon.
• In making this decision, the well owner weighs the following two effects:
− The output effect ( 產量效果 ): Because price is above marginal cost,
selling one more gallon of water at the going price will raise profit.
− The price effect ( 價格效果 ): Raising production will increase the total
amount sold, which will lower the price of water and lower the profit
from all the other gallons sold.
Outcome
• If the output effect outweighs the price effect, the well owner will
increase production.
• If the price effect outweighs the output effect, the owner will not raise
production.
• (In fact, in this case, it is profitable to reduce production.)
• Each oligopolist increases production until these two marginal effects
exactly balance, taking the other firms’ production as given.
Outcome
• Now consider how the number of firms in the industry affects the marginal
analysis of each oligopolist.
• The more sellers there are, the less each seller is concerned about
her own impact on the market price. That is, as the oligopoly grows in
size, the magnitude of the price effect falls.
• When the oligopoly grows very large, the price effect disappears
altogether. In this extreme case, the production decision of an individual
firm no longer affects the market price.
Outcome
• Each firm takes the market price as given when deciding how much to
produce and, therefore, increases production as long as price exceeds
marginal cost.
• We can now see that a large oligopoly is essentially a group of competitive
firms. A competitive firm considers only the output effect when deciding
how much to produce: Because a competitive firm is a price taker, the price
effect is absent.
Outcome
• Thus, as the number of sellers in an oligopoly grows, an oligopolistic
market increasingly resembles a competitive market. The price
approaches marginal cost, and the quantity produced approaches the
socially efficient level.
• This analysis of oligopoly offers a new perspective on the effects of
international trade.
• Imagine that Toyota and Honda are the only automakers in Japan,
Volkswagen and BMW are the only automakers in Germany, and Ford
and General Motors are the only automakers in the United States.
Outcome
• If these nations prohibited international trade in autos, each would have an
auto oligopoly with only two members, and the market outcome would
likely depart substantially from the competitive ideal.
• With international trade, however, the car market becomes a world
market, and the oligopoly in this example has six members.
• Allowing free trade increases the number of producers from which each
consumer can choose, and this increased competition keeps prices closer
to marginal cost.
Outcome
• Thus, the theory of oligopoly provides another reason, in addition to the
theory of comparative advantage discussed in Chapter 3, why countries can
benefit from free trade.
Ask the Experts: Market Share and Market Power
“If a small number of firms have a large combined market share in a properly defined
market, it is strong evidence that those firms have substantial market power.”
Source: IGM Economic Experts Panel, September 25, 2018.
QuickQuiz
1. The key feature of an oligopolistic market is that

a. each firm produces a different product from other firms.
b. a single firm chooses a point on the market demand curve.
c. each firm takes the market price as given.
d. a small number of firms are acting strategically.
QuickQuiz
2. If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a

quantity of output _________ the competitive level and _________ the monopoly level.
a. less than; more than
b. more than; less than
c. less than; equal to
d. equal to; more than
QuickQuiz
3. If an oligopoly does not cooperate and each firm chooses its own quantity, the industry
will produce a quantity of output _________ the competitive level and _________ the
monopoly level.
QuickQuiz
4. As the number of firms in an oligopoly grows, the industry approaches a level of

output _________ the competitive level and _________ the monopoly level.
18-2
The Economics of Cooperation
• As we have seen, oligopolies would like to reach the monopoly outcome.

Doing so, however, requires cooperation, which can be hard to establish
and maintain.
• In this section we look more closely at the problems that arise when
cooperation among actors is desirable but difficult. To analyze the
economics of cooperation, we need to learn a little about game theory.
• In particular, we focus on a “game” called the prisoners’ dilemma ( 囚徒

困境 ), which provides insight into why cooperation is difficult.
• Many times in life, people fail to cooperate with one another even when
cooperation would make them all better off. An oligopoly is just one
example.
• The prisoners’ dilemma provides a general lesson that applies to any group
trying to maintain cooperation among its members.
The Prisoners’ Dilemma
• Prisoners’ dilemma ( 囚徒困境 )*
• Particular “game” between two captured prisoners that illustrates why cooperation is
difficult to maintain even when it is mutually beneficial
• Dominant strategy ( 優勢策略 )*
• Strategy that is best for a player in a game regardless of the strategies chosen by the
other players
• Cooperation between the prisoners is difficult to maintain because cooperation is
individually irrational
• The prisoners’ dilemma is a story about two criminals who have been
captured by the police. Let’s call them Bonnie and Clyde.
• The police have enough evidence to convict Bonnie and Clyde of the minor
crime of carrying an unregistered gun, so that each would spend a year
in jail.
• The police also suspect that the two criminals have committed a bank
robbery together, but they lack hard evidence to convict them of this
major crime.
• The police question Bonnie and Clyde in separate rooms and offer each of
them the following deal:
• “Right now, we can lock you up for 1 year. If you confess ( 承認 ) to the
bank robbery and implicate your partner, however, we’ll give you
immunity and you can go free. Your partner will get 20 years in jail.
• But if you both confess to the crime, we won’t need your testimony and
we can avoid the cost of a trial, so you will each get an intermediate
sentence of 8 years.”
• If Bonnie and Clyde, heartless bank robbers that they are, care only
about their own individual sentences, what would you expect them to do?
• Figure 1 shows the payoff matrix for their choices.
• Each prisoner has two strategies: confess or remain silent.
• The sentence each prisoner gets depends on the strategy he or she chooses
and the strategy chosen by his or her partner in crime.
Figure 1 The Prisoners’ Dilemma
• In this game between two criminals

suspected of committing a major crime,
the sentence that each receives depends
both on their decision whether to confess
or remain silent and on the decision made
by the other.
• Consider first Bonnie’s decision.

• She reasons as follows: “I don’t know what Clyde is going to do. If he
remains silent, my best strategy is to confess, because then I’ll go free
rather than spending a year in jail.
• If he confesses, my best strategy is still to confess, because then I’ll spend
8 years in jail rather than 20.
• So, regardless of what Clyde does, I am better off confessing.”
• In the language of game theory, a strategy is called a dominant strategy if

it is the best strategy for a player to follow regardless of the strategies
pursued by other players.
• In this case, confessing is a dominant strategy for Bonnie. She spends less
time in jail if she confesses, regardless of whether Clyde confesses or
remains silent.
• Now consider Clyde’s decision. He faces the same choices as Bonnie, and
he reasons the same way.
• Regardless of what Bonnie does, Clyde can reduce his jail time by
confessing. In other words, confessing is also a dominant strategy for
Clyde.
• In the end, both Bonnie and Clyde confess, and both spend 8 years in jail.
• This outcome is a Nash equilibrium: Each criminal is choosing the best
strategy available given the strategy the other is following.
• Yet, from their standpoint, the outcome is terrible.
• If they had both remained silent, both of them would have been better
off, spending only 1 year in jail on the gun charge. Because each pursues
his or her own interest, the two prisoners together reach an outcome that is
worse for each of them.
• You might have thought that Bonnie and Clyde would have foreseen this
situation and planned ahead.
• But even with advanced planning, they would still run into problems.
• Imagine that, before the police captured Bonnie and Clyde, the two
criminals had agreed not to confess.
• Clearly, this pact would make them both better off if they both lived up to
it because each would spend only 1 year in jail.
• But would the two criminals in fact remain silent simply because they had
agreed they would?
• Once they are being questioned separately, the logic of self-interest takes
over and leads them to confess.
• Cooperation between the two prisoners is difficult to maintain, because
cooperation is individually irrational.
膽小鬼賽局（ the game of chicken ）
• 膽小鬼賽局（ the game of chicken ），是博弈論中兩個玩家對抗的模

型，一個玩家讓步對於雙方都有好處。
• 玩家的最佳選擇取決於其對手會做什麼：如果對手讓步，那本方就不
應該讓步，但如果對手不讓步，本方就應該讓步。
• 簡而言之就是「不要命的最大」。
• 「膽小鬼賽局」這一名稱的由來是一種危險的遊戲，遊戲中兩名車手
相對驅車而行。
• 如果兩人拒絕轉彎，任由兩車相撞，最終兩人都會死於車禍；但如果
有一方轉彎，而另一方沒有，那麼轉彎的一方會被恥笑為「膽小鬼」
（ chicken ），另一方勝出。
• 因此這博弈模型在政治學和經濟學中普遍使用。
• 面對同一資源的爭奪中，競爭者可以選擇調和或者對抗的情況。
• 以賽局理論的術語來說，這裡的問題在於有兩個納許均衡，各對一方
有利：不退讓的那一方。
• 兩人在只容一人通過的人行道上迎面相遇，其中一定得有一人退讓，
踏進排水溝，兩人才能通過。
• 就邏輯上和納許均衡來說，還是得要有人踏進排水溝（雖然這樣可能
會搞得鞋子都是泥—輸掉了），才能解決這個問題。
• 如果雙方都不願意，結果可能就會是大吵一架，甚至是大打一場。
• 這種情形放大到國家層級，就可能爆發戰爭。
Oligopolies as a Prisoners’ Dilemma
• Oligopolies have trouble maintaining monopoly profits

• Monopoly outcome is jointly rational, but each oligopolist has an incentive to
cheat
• Self-interest makes it hard for the oligopolists to maintain the cooperative outcome
with low production, high prices, and monopoly profits
• What does the prisoners’ dilemma have to do with markets and imperfect
competition?
• It turns out that the game oligopolists play in trying to reach the monopoly
outcome is similar to the game that the two prisoners play in the
prisoners’ dilemma.
• Consider again the choices facing Jack and Jill. After prolonged
negotiation, the two suppliers of water agree to keep production at 30
gallons so that the price will be high and together they will earn the
maximum profit.
• After they agree on production levels, however, each of them must decide
whether to cooperate and honor this agreement or to ignore it and produce
at a higher level.
• Figure 2 shows how the profits of the two producers depend on the
strategies they choose.
Figure 2 Jack and Jill’s Oligopoly Game
• In this game between Jack and Jill, the

profit that each earns from selling water
depends on both the quantity each
chooses to sell and the quantity the other
chooses to sell.
• Suppose you are Jack. You might reason as follows: “I could keep
production at 30 gallons as we agreed, or I could raise my production and
sell 40 gallons.
• If Jill lives up to the agreement and keeps her production at 30 gallons,
then I earn a profit of $2,000 by selling 40 gallons and $1,800 by selling 30
gallons. In this case, I am better off with the higher-level production.
• If Jill fails to live up to the agreement and produces 40 gallons, then I
earn $1,600 by selling 40 gallons and $1,500 by selling 30 gallons.
• Once again, I am better off with higher production.

• So, regardless of what Jill chooses to do, I am better off reneging on our
agreement and producing at the higher level.”
• Producing 40 gallons is a dominant strategy for Jack.
• Of course, Jill reasons in exactly the same way, and so both produce at the
higher level of 40 gallons.
• The result is the inferior outcome (from Jack and Jill’s standpoint) with low
profits for each of the two producers.
• This example illustrates why oligopolies have trouble maintaining

monopoly profits.
• The monopoly outcome is jointly rational, but each oligopolist has an
incentive to cheat ( 作弊 ).
• Just as self-interest drives the prisoners in the prisoners’ dilemma to
confess, self-interest makes it hard for the oligopolists to maintain the
cooperative outcome with low production, high prices, and monopoly
profits.
Other Examples of the Prisoners’ Dilemma
• Arms races
• Applies to relations among the United States, Russia, and another great military
power, China
• Dominant strategy: Arm
• Common resources
• Dominant strategy: Each company drills two wells, lower profit
OPEC and the World Oil Market
( 石油輸出國家組織與全球石油市場 )
• 雖然以上小鎮水市場的故事純屬虛構，但如果我們把水改成石油，把
阿甘與卜派改成伊朗與伊拉克，則這個故事就真實多了。
• 全世界的大部分石油由少數幾個國家生產，且這些國家大多位於中東。
• 全球的石油市場稱得上是寡占市場，且每個產油大國的產量決策跟阿
甘與卜派的產量決策非常類似。
• 那些主要產油國家組成一個稱為石油輸出國家組織（ OPEC ）的卡特
爾。其成員包括沙烏地阿拉伯、伊拉克、伊朗、阿拉伯聯合大公國、
科威特、委內瑞拉以及其他國家。
• 在 2016 年，以俄羅斯為首的其他十個產油國與 OPEC 合盟，稱為
OPEC+ ；此一卡特爾的成員國控制全球大多數的石油蘊藏量。
• OPEC 所面臨的問題與阿甘和卜派所面臨的問題非常類似。
• OPEC 成員國都希望油價維持在高檔，但每個成員國又都會想要多生
產一些以賺取更多的利潤。
• 所以， OPEC 成員國雖然經常協議減產，但也經常違反協議。
• 在 1973 到 1985 年期間， OPEC 成功地維持各成員國之間的合作關係，
而使國際石油價格由 1972 年的每桶 3 美元上漲到 1974 年的 11 美元，
再上漲到 1981 年的 35 美元。
• 但在 1980 年代中期，各成員國就開始在吵產量配額問題；之
後， OPEC 就無法有效維持成員國之間的合作關係。
• 在 1986 年，國際石油價格下滑到每桶 13 美元。
• 在最近幾年， OPEC 的成員國仍定期召開會議，但 OPEC 已不像以前
那樣可以成功地達成並落實協議。
• 雖然國際石油價格在 2007 與 2008 年飆漲，但這主要是因為中國與印
度經濟快速成長，而不是因為石油減產。
• 技術（如頁岩油的開採技術）進步讓全球的石油供給增加，而削弱了
OPEC 的市場影響力，從而石油價格的波動主要受到市場供需的影響，
而不是卡特爾的人為操縱產量。
• 雖然 OPEC 成員國無法達成並落實合作協議會使石油價格變低，從而
使他們的總利潤變少，但這對全球消費者是有利的。
Other Examples of the Prisoners’ Dilemma
• We have seen how the prisoners’ dilemma can be used to understand the
problem facing oligopolies.
• The same logic applies to many other situations as well.
• Here we consider two examples in which self-interest prevents
cooperation and leads to an inferior outcome for the parties involved.
Other Examples of the Prisoners’ Dilemma: Arms
Races
• In the decades after World War II, the world’s two superpowers— the
United States and the Soviet Union—were engaged in a prolonged
competition over military power.
• This topic motivated some of the early work on game theory.
• The game theorists pointed out that an arms race is much like the prisoners’
dilemma.
Races
• To see why, consider the decisions of the United States and the Soviet
Union about whether to build new weapons or to disarm.
• Each country prefers to have more arms than the other because a larger
arsenal would give it more influence in world affairs.
• But each country also prefers to live in a world safe from the other
country’s weapons.
Figure 3 An Arms-Race Game
• In this game between two countries, the

safety and power of each depends on
what its adversary does, as well as on its
own decision whether to arm.
Races
• Figure 3 shows the payoff matrix for this deadly game.
• If the Soviet Union chooses to arm, the United States is better off doing the
same to prevent the loss of power.
• If the Soviet Union chooses to disarm, the United States is better off arming
because doing so would make it more powerful.
Figure 3 An Arms-Race Game
Races
• For each country, arming is a dominant strategy.
• Thus, each country chooses to continue the arms race, resulting in the
inferior outcome with both countries at risk.
Races
• Throughout the Cold War era from about 1945 to 1991, the United States
and the Soviet Union attempted to solve this problem through negotiation
and agreements over arms control.
• The problems that the two countries faced were similar to those that
oligopolists encounter in trying to maintain a cartel.
• Just as oligopolists argue over production levels, the United States and the
Soviet Union argued over the amount of arms that each country would
be allowed.
Races
• And just as cartels have trouble enforcing production levels, the United
States and the Soviet Union each feared that the other country would cheat
on any agreement.
• In both arms races and oligopolies, the relentless logic of self-interest
drives the participants toward the noncooperative outcome, which is
worse for both parties.
Other Examples of the Prisoners’ Dilemma:
Common Resources
• In Chapter 11 we saw that people tend to overuse common resources. One
can view this problem as an example of the prisoners’ dilemma.
• Imagine that two oil companies—ExxonMobil and Chevron—own
adjacent oil fields. Under the fields is a common pool of oil worth $12
million. Drilling a well to recover the oil costs $1 million.
• If each company drills one well, each will get half of the oil and earn a $5
million profit ($6 million in revenue minus $1 million in costs).
Common Resources
• Because the pool of oil is a common resource, the companies will not use
it efficiently.
• Suppose that either company could drill a second well. If one company has
two of the three wells, that company gets two-thirds of the oil, which
yields a profit of $6 million.
• The other company gets one-third of the oil, for a profit of $3 million.
Figure 4 A Common-Resources Game
• When firms pump oil from a common

pool, each firm’s profit depends on both
the number of wells it drills and the
number of wells drilled by the other firm.
Common Resources
• Yet if each company drills a second well, the two companies again split the
oil. In this case, each bears the cost of a second well and therefore earns
a profit of only $4 million.
• Figure 4 shows the game.
• Drilling two wells is a dominant strategy for each company. Once again, the
self-interest of the two players leads them to an inferior outcome.
Figure 4 A Common-Resources Game
The Prisoners’ Dilemma and the Welfare of Society
• The prisoners’ dilemma describes many of life’s situations, and it shows

that cooperation can be difficult to maintain, even when cooperation would
make both players in the game better off.
• Clearly, this lack of cooperation is a problem for those involved in these
situations. But is lack of cooperation a problem from the standpoint of
society as a whole?
• The answer depends on the circumstances.
• In some cases, the noncooperative equilibrium is bad for society as well as

the players.
• In the arms-race game in Figure 3, both the United States and the Soviet
Union end up at risk.
• In the common-resources game in Figure 4, the extra wells dug by Chevron
and ExxonMobil are pure waste. In both cases, society would be better
off if the two players could reach the cooperative outcome.
• By contrast, in the case of oligopolists trying to maintain monopoly

profits, lack of cooperation is desirable from the standpoint of society
as a whole.
• The monopoly outcome is good for the oligopolists but bad for the
consumers of the product.
• As we first saw in Chapter 7, the competitive outcome is best for society
because it maximizes total surplus. When oligopolists fail to cooperate,
the quantity they produce is closer to this optimal level.
• Put differently, the invisible hand guides markets to allocate resources

efficiently only when markets are competitive, and markets are
competitive only when firms in the market fail to cooperate with one
another.
• Similarly, consider the case of the police questioning two suspects. Lack of
cooperation between the suspects ( 嫌犯 ) is desirable, for it allows the
police to convict more criminals. The prisoners’ dilemma is a dilemma for
the prisoners, but it can be a boon to everyone else.
Why People Sometimes Cooperate
• The prisoners’ dilemma shows that cooperation is difficult. But is it

impossible? Not all prisoners, when questioned by the police, decide to turn
in their partners in crime.
• Cartels sometimes manage to maintain collusive arrangements, despite the
incentive for individual members to defect.
• Very often, players can solve the prisoners’ dilemma because they play
the game not once but many times.
• To see why cooperation is easier to enforce in repeated games ( 重複性賽

局 ), let’s return to our duopolists, Jack and Jill, whose choices were given
in Figure 2.
• Jack and Jill would like to agree to maintain the monopoly outcome in
which each produces 30 gallons.
• Yet, if Jack and Jill are to play this game only once, neither has any
incentive to live up to this agreement. Self-interest drives each of them to
renege and choose the dominant strategy of 40 gallons.
• Now suppose that Jack and Jill know that they will play the same game
every week.
• When they make their initial agreement to keep production low, they
can also specify what happens if one party reneges. They might agree, for
instance, that once one of them reneges ( 食言 ) and produces 40 gallons,
both of them will produce 40 gallons forever after.
• This penalty is easy to enforce because if one party produces at a high level,
the other has every reason to do the same.
• The threat of this penalty may be all that is needed to maintain cooperation.
Each person knows that defecting would raise his or her profit from $1,800
to $2,000.
• But this benefit would last for only one week. Thereafter, profit would fall
to $1,600 and stay there.
• As long as the players care enough about future profits, they will choose
to forgo the one-time gain from defection. Thus, in a game of repeated
prisoners’ dilemma, the two players may well be able to reach the
cooperative outcome.
• Cartels sometimes manage to maintain collusive arrangements, despite

the incentive for members to defect.
• In a game of repeated prisoners’ dilemma, the players may well be able
to reach the cooperative outcome.
The Prisoners’ Dilemma Tournament
( 「囚犯困境」賽局競賽 )
• 想像你正在參加一場「囚犯困境」賽局競賽；你不只玩一局，而是會
玩很多局。
• 遊戲規則如同本節所描述的囚犯困境賽局；你的最終名次決定於你總
共「坐」了幾年牢，總刑期愈低者名次愈高。
• 你會採取什麼樣的策略？一開始你會招還是不招？其他參賽者的招式
會不會影響你後續的策略？
• 重複性囚犯困境賽局是一個非常複雜的賽局。
• 為鼓勵合作，局內人必須為不合作而付出代價。
• 在上一節所描述的阿甘與卜派的雙頭寡占裡，只要有一方毀諾，卡特
爾就會永遠破局。但在一個重複性賽局裡，允許雙方在不合作後能再
回到合作局面，對雙方應該都有利。
• 為了解何項策略較佳，政治學家艾塞爾羅德（ R. Axelrod ）舉辦了一
場競賽。
• 參賽者必須設計出能玩重複性囚犯困境賽局的電腦程式，且每一個程
式需跟其他所有的程式比賽。
• 「優勝者」為總刑期最低的程式。
• 此次的優勝者採取一個稱為一報還一報（ tit-for-tat ）的簡單策略。
根據這個策略，參賽者一開始應採合作策略，接下來的行動就跟對方
一模一樣（所以才叫做一報還一報）。
• 因此，該優勝程式一開始採合作策略，直到對方毀諾為止；然後，該
程式開始毀諾，直到對方又開始合作為止。
• 換言之，這個策略一開始是友善的，但會懲罰毀諾者，直到對方再度
信守承諾。出乎艾塞爾羅德的預料之外，這個簡單策略的表現優於其
他所有更為複雜的策略。
• 一報還一報的策略其實由來已久。
• 實質上，它就是聖經中的「以眼還眼，以牙還牙」的策略。
• 此一競賽也許帶給我們這樣的策略是生命中某些賽局的實用策略的啟
示。
為什麼都選擇翹課淺談囚徒困境
QuickQuiz
5. The prisoners’ dilemma is a two-person game illustrating that

a. the cooperative outcome could be worse for both people than the Nash equilibrium.
b. even if the cooperative outcome is better than the Nash equilibrium for one person, it
might be worse for the other.
c. even if cooperation is better than the Nash equilibrium, each person might have an
incentive not to cooperate.
d. rational, self-interested individuals will naturally avoid the Nash equilibrium because
it is worse for both of them.
QuickQuiz
6. Two people facing the prisoners’ dilemma may cooperate if

a. they recognize that the Nash equilibrium is worse for both people than the cooperative
equilibrium.
b. they will play the game repeatedly and expect noncooperation to be met with future
retaliation.
c. each chooses the strategy that is best for herself, given what the other person is doing.
d. each realizes that the strategy she chooses is not known to the other until the outcome
is realized.
18-3
Public Policy toward Oligopolies
• One of the Ten Principles of Economics in Chapter 1 is that governments

can sometimes improve market outcomes. This principle applies directly
to oligopolistic markets.
• As we have seen, cooperation among oligopolists is undesirable from the
standpoint of society as a whole because it leads to production that is too
low and prices that are too high.
• To move the allocation of resources closer to the social optimum,

policymakers should try to induce firms in an oligopoly to compete
rather than cooperate.
• Let’s consider how policymakers do this and then examine the
controversies ( 爭議 ) that arise in this area of public policy.
Antitrust Laws
• The Sherman Antitrust Act, 1890

• Elevated agreements among oligopolists from an unenforceable contract to a
criminal conspiracy
• The Clayton Act, 1914
• Further strengthened the antitrust laws
• Used to prevent mergers
• Used to prevent oligopolists from colluding
Restraint of Trade and the Antitrust Laws
• Governments can sometimes improve market outcomes

• Policymakers
• Try to induce firms in an oligopoly to compete rather than cooperate
• Move the allocation of resources closer to the social optimum
• One way that policy discourages ( 阻礙 ) cooperation is through the

common law. Normally, freedom of contract is an essential part of a market
economy. Businesses and households use contracts to arrange mutually
advantageous trades, and they rely on the court system to enforce
contracts.
• Yet, for many centuries, judges in England and the United States have
deemed agreements among competitors to reduce quantities and raise
prices to be contrary ( 對立的 ) to the public good. They have therefore
refused to enforce such agreements.
• The Sherman Antitrust Act of 1890 codified and reinforced this policy:
• Every contract, combination in the form of trust or otherwise, or
conspiracy ( 陰謀 ), in restraint of ( 限制於 ) trade or commerce among
the several States, or with foreign nations, is declared to be illegal….
• 限制幾個州之間或與外國之間的貿易或商業的每一份合同、以信託或
其他形式的聯合或共謀形式的合同，都被宣佈為非法…。
• Every person who shall monopolize, or attempt to monopolize, or combine

or conspire with any person or persons to monopolize any part of the trade
or commerce among the several States, or with foreign nations, shall be
deemed ( 視為 ) guilty ( 有罪的 ) of a misdemeanor, and on conviction
thereof, shall be punished by fine not exceeding fifty thousand dollars,
or by imprisonment not exceeding one year, or by both said
punishments, in the discretion of the court.
• The Sherman Act elevated agreements among oligopolists from

unenforceable contracts to criminal conspiracies ( 犯罪陰謀 ).
• The Clayton Act of 1914 further strengthened the antitrust laws. According
to this law, if a person could prove that she was damaged by an illegal
arrangement ( 非法安排 ) to restrain trade, that person could sue ( 起訴 )
and recover three times the damages she sustained.
• The purpose of this unusual rule of triple damages is to encourage private
lawsuits ( 訴訟 ) against conspiring ( 共謀 ) oligopolists.
• Today, both the U.S. Justice Department and private parties have the
authority to bring legal suits to enforce the antitrust laws.
• As we discussed in Chapter 16, these laws are used to prevent mergers
that would give a firm excessive market power.
• In addition, these laws are used to prevent oligopolists from acting together
in ways that would make their markets less competitive.
An Illegal Phone Call
( 非法的電話通話 )
• 在寡占市場中，企業有強烈的動機合謀，以減少生產、提高價格和增
加利潤。
• 偉大的 18 世紀經濟學家 Adam Smith 對這種潛在的市場失效非常了解。
• 在《國富論》中，他寫道：從事相同行業的人很少聚在一起，混進行
對話的時候，最終要麼演變成對公眾的陰謀，要麼變成提高價格的某
種轉移。
• 要看到 Adam Smith 觀察的現代例子，以下是 1980 年代初兩名航空公
司高級主管之間的電話對話摘錄。
• 這通話於 1983 年 2 月 24 日報導在《紐約時報》上。
• Robert Crandall 是 American Airlines 的總裁， Howard Putnam 是當時
一家重要航空公司 Braniff Airlines 的總裁。
• Robert Crandall ：我覺得這真的是愚蠢至極 ... 坐在這裡互相競爭，最
後我們都沒賺到一分錢。
• Howard Putnam ：你有什麼建議嗎？
• Robert Crandall ：是的，我有個建議給你。將你的票價提高 20% 。我
隔天也會提高我的。
• Howard Putnam ：羅伯特，我們 ...
• Robert Crandall ：你會賺更多錢，我也是。
• Howard Putnam ：我們不能談價格！
• Robert Crandall ：噢，該死的。我們可以談論任何我們想談論的事情。
• Howard Putnam 是對的 .
• 謝爾曼反壟斷法（ The Sherman Antitrust Act ）禁止競爭對手高級主管談
論價格調整的事情。
• 當 Howard Putnam 將這段對話的錄音交給司法部時，司法部對 Robert
Crandall 提起訴訟。
• 兩年後， Robert Crandall 和司法部達成和解，其中 Robert Crandall 同
意對他的業務活動施加各種限制，包括他與其他航空公司官員的聯繫。
• 司法部表示，和解的條款將“保護航空業競爭，防止 American
Airlines 和 Robert Crandall 透過與競爭對手討論航空服務價格的方式，
進一步試圖壟斷任何航線上的客運航空服務”。
Active Learning 3: The Airline Fare Wars Game
• The players: American Airlines and Braniff Airways

• The choice: Cut fares by 50% or leave fares alone
• If both airlines cut fares, each airline’s profit = $400 million
• If neither airline cuts fares, each airline’s profit = $600 million
• If only one airline cuts its fares, its profit = $800 million; the other airline’s profit =
$200 million
• Draw the payoff matrix and find the Nash equilibrium
Controversies over Antitrust Policy
• Used to condemn some business practices whose effects are not obvious
• Resale price maintenance ( 限制轉售價格 )
• Predatory pricing ( 掠奪式定價 )
• Bundling ( 包裹出售 )
Controversies over Antitrust Policy
• The question of what kinds of behavior the antitrust laws ( 反壟斷法 )

should prohibit ( 禁止 ) is often controversial ( 有爭議的 ).
• Most commentators ( 評論員 ) agree that price-fixing agreements ( 價格
壟斷協議 ) among competing firms should be illegal.
• Yet the antitrust laws have been used to condemn some business practices
whose effects are not obvious. Here we consider three examples.
Resale Price Maintenance
• Resale price maintenance ( 限制轉售價格 ) (fair trade 公平交易 )

• Require retailers to charge customers a given price
• Might seem anticompetitive
• Prevents the retailers from competing on price
• Defenders:
• Not aimed at reducing competition
• Legitimate goal: some retailers offer service
Controversies over Antitrust Policy: Resale Price
Maintenance
• One example of a controversial business practice is resale price
maintenance ( 維持轉售價格 ).
• Imagine that Superduper Electronics sells streaming media players to
retail stores for $400.
• If Superduper requires the retailers to charge customers $500, it is said
to engage in resale price maintenance. Any retailer that charged less than
$500 would violate its contract with Superduper.
Maintenance
• At first, resale price maintenance might seem anticompetitive ( 反競爭
的 ) and, therefore, detrimental ( 有害的 ) to society.
• Like an agreement among cartel members, it prevents the retailers from
competing on price ( 價格競爭 ).
• For this reason, the courts have at times viewed resale price maintenance
as a violation of the antitrust laws.
Maintenance
• Yet some economists defend ( 辯護 ) resale price maintenance on two
grounds.
• First, they deny that it is aimed at reducing competition. If Superduper
Electronics wanted to exert ( 發揮 ) its market power, it would do so by
raising the wholesale price rather than controlling the resale price.
Maintenance
• Moreover, Superduper has no incentive to discourage competition among
its retailers.
• Indeed, because a cartel of retailers sells less than a group of competitive
retailers, Superduper would be worse off if its retailers were a cartel.
Maintenance
• Second, economists believe that resale price maintenance has a legitimate
goal.
• Superduper may want its retailers to provide customers a pleasant
showroom and a knowledgeable sales force.
Maintenance
• Yet, without resale price maintenance, some customers would take
advantage of one store’s service to learn about the streaming media
player’s special features and then buy the item at a discount retailer
that does not provide this service.
• Good customer service can be viewed as a public good among the
retailers that sell Superduper products.
Maintenance
• As we discussed in Chapter 11, when one person provides a public good,
others are able to enjoy it without paying for it.
• In this case, discount retailers would free ride ( 搭便車 ) on the service
provided by other retailers, leading to less service than is desirable.
• Resale price maintenance is one way for Superduper to solve this free-
rider problem.
Maintenance
• The example of resale price maintenance illustrates an important principle:
Business practices that appear to reduce competition may in fact have
legitimate ( 合法的 ) purposes.
• This principle makes the application of the antitrust laws all the more
difficult. The economists, lawyers, and judges in charge of enforcing these
laws must determine what kinds of behavior actually impede
competition and reduce economic wellbeing. Often that job is not easy.
Predatory Pricing
• Predatory pricing
• Charge prices that are too low
• Anticompetitive
• Price cuts may be intended to drive other firms out of the market
• Skeptics
• Predatory pricing — not a profitable strategy
• Price war — to drive out a rival’ prices are driven below cost
Controversies over Antitrust Policy: Predatory
Pricing
• Firms with market power normally use that power to raise prices above
the competitive level.
• But should policymakers ever be concerned that firms with market power
might charge prices that are too low?
• This question is at the heart of a second debate over antitrust policy.
Pricing
• Imagine that a large airline, call it Coyote Air, has a monopoly on some
route.
• Then Roadrunner Express enters and takes 20 percent of the market,
leaving Coyote with 80 percent.
• In response to this competition, Coyote starts slashing ( 削減 ) its fares.
Pricing
• Some antitrust analysts argue that Coyote’s move could be anticompetitive:
The price cuts may be intended to drive Roadrunner out of the market
so Coyote can recapture its monopoly and raise prices again.
• Such behavior is called predatory pricing.
• Although predatory pricing is a common claim in antitrust suits, some
economists are skeptical ( 持懷疑態度的 ) of this argument and believe
that predatory pricing is rarely, if ever, a profitable business strategy. Why?
Pricing
• For a price war to drive out a rival, prices have to be driven below cost. Yet
if Coyote starts selling cheap tickets at a loss, it had better be ready to fly
more planes, because low fares will attract more customers.
• Roadrunner, meanwhile, can respond to Coyote’s predatory move by
cutting back on flights. As a result, Coyote ends up bearing more than
80 percent of the losses, putting Roadrunner in a good position to survive
the price war. As in the old Roadrunner–Coyote cartoons, the predator ( 掠
食者 ) suffers ( 受苦 ) more than the prey ( 獵物 ).
Pricing
• Economists continue to debate whether predatory pricing should concern
antitrust policymakers.
• Various questions remain unresolved. Is predatory pricing ever a profitable
business strategy?
• If so, when?
• Are the courts capable of telling which price cuts are competitive and thus
good for consumers and which are predatory? There are no simple
answers.
Bundling
• Bundling
• Offer two goods together at a single price
• Expand market power
• Skeptics
• Cannot increase market power by binding two goods together
• Form of price discrimination
• Bundling may increase profit
Controversies over Antitrust Policy: Bundling
• A third example of a controversial business practice is tying. Suppose that

Makemoney Movies produces two new films—Superheroes ( 超級英雄 )
and Hamlet ( 哈姆雷特 ).
• If Makemoney offers theaters the two films together at a single price,
rather than separately, the studio is said to be tying ( 捆綁 ) its two
products.
• When the practice of tying movies was challenged, the Supreme Court
banned it.
• The court reasoned as follows: Imagine that Superheroes is a blockbuster
( 重磅電影 ) and Hamlet is an unprofitable art film ( 無利可圖的藝術電
影 ).
• Then the studio could use the high demand for Superheroes to force
theaters to buy Hamlet. It seemed that the studio could use tying as a
mechanism for expanding its market power.
• Many economists are skeptical ( 持懷疑態度的 ) of this argument.

• Imagine that theaters are willing to pay $200,000 for Superheroes and
nothing for Hamlet.
• Then the most that a theater would pay for the two movies together is
$200,000—the same as it would pay for Superheroes by itself.
• Forcing the theater to accept a worthless movie as part of the deal does not
increase the theater’s willingness to pay.
• Makemoney cannot increase its market power simply by bundling the
two movies together.
• Why, then, does tying exist?
• One possibility is that it is a form of price discrimination ( 差別取價 ).

• Suppose there are two theaters.
• City Theater is willing to pay $150,000 for Superheroes and $50,000 for
Hamlet.
• Country Theater is just the opposite: It is willing to pay $50,000 for
Superheroes and $150,000 for Hamlet.
• If Makemoney charges separate prices for the two films, its best strategy is
to charge $150,000 for each film, and each theater chooses to show only
one film.
• Yet if Makemoney offers the two movies as a bundle, it can charge each
theater $200,000 for the movies.
• Thus, if different theaters value the films differently, tying may allow the
studio to increase profit by charging a combined price closer to the
buyers’ total willingness to pay.
• Tying remains a controversial ( 有爭議的 ) business practice.

• The Supreme Court’s argument that tying allows a firm to extend its market
power to other goods is not well founded ( 沒有充分根據 ), at least in its
simplest form.
• Yet economists have proposed more elaborate theories for how tying can
impede competition.
• Given our current economic knowledge, it is unclear whether tying is
adverse for society as a whole.
Ask the Experts: Antitrust in the Digital Economy
“Google's dominance of the market for internet search arose mainly from a combination
of economies of scale and a quality algorithm.”
Source: IGM Economic Experts Panel, November 3, 2020, December 22, 2020..
In light of Google’s dominance, its current operating practices could have a substantial
negative effect on social welfare in the long run.”
“The nature of the market dominance of technology giants in the digital economy
warrants either the imposition of some kind of regulation or a fundamental change in
antitrust policy.”
“Requiring Facebook to divest WhatsApp and Instagram is likely to make society better
off.”
The Microsoft Case
（微軟案）
• 近幾年來，最重要且最富爭議的反托拉斯案件是 1998 年美國政府控告
微軟公司。
• 為美國政府作證的是著名的經濟學家費雪（ Franklin Fisher, MIT 教
授），為微軟作證的是另一位著名經濟學家史瑪蘭斯（ Richard
Schmalensee, MIT 教授）。
• 本案對微軟的未來發展影響深遠。
The Microsoft Case
（微軟案）
• 本案牽涉到包裹出售。
• 具體而言，微軟是否可以把它的網路瀏覽器（ Explorer ）併到它的視
窗作業系統中。
• 美國政府的主要控訴理由是，微軟個人電腦作業系統的市場占有率高
達八成以上，它的包裹出售做法會對其他軟體公司，如網景
（ Netscape ），形成不公平競爭。
The Microsoft Case
（微軟案）
• 微軟則辯稱，讓舊產品有新功能是技術進步的自然結果，就如同現在
的汽車都附有音響與空調，這些在以前是沒有的。
• 而且，微軟雖然在作業系統上有很高的市場占有率，但也持續受到蘋
果麥金塔（ Mac ）和立尼仕（ Linux ）作業系統的挑戰。
• 微軟同時也舉其視窗作業系統的價格（約 50 美元）只占個人電腦售價
的 3% 來說明其市場影響力其實是有限的。
The Microsoft Case
（微軟案）
• 在 2002 年 11 月，此案終於落幕。微軟同意接受對其業務上的一些限
制，而美國政府則同意微軟的視窗作業系統可以保留網路瀏覽器。
• 不過，微軟這個全世界最大的電腦軟體公司目前在美國及歐盟，仍有
多件反托拉斯訟案纏身。
• 技術發展已讓 Explorer 的雄風不再。谷歌的 Chrome 與蘋果的 Safari
已超越 Explorer ，有些分析家將此歸功於美國司法部與微軟的和解，
讓 Chrome 與 Safari 得以冒出頭。
賽局理論正和、零和、負和
• 負和賽局是指賽局的參賽者最後得到的收獲都小於付出，都沒有佔到
便宜，是一種兩敗俱傷的賽局。
• 零和賽局是指參與者中一方獲益，另一方損失，並且參與者之間獲得
的利益與損失之和為零。
• 正和賽局又被稱為雙贏賽局、合作賽局，是指參與者都能獲益，或者
一方的收益增加並不影響其他參與者的利益，這種賽局被認為是結局
最好的一種，也就是雙贏。
夏娃
棒球百貨
亞當棒球 (10 ， 3) (0 ， 0)
百貨 (-5 ， -5) (3 ， 10)
當賽局發生衝突時，如果可以充分了解對方、取長補短、各取所
需，往往會使雙方走出負和賽局或者零和賽局，實現合作共贏。
田忌賽馬
• 田忌賽馬出自《史記》卷六十五：《孫子吳起列傳第五》，故事的主
角是田忌、孫臏和齊威王，是中國歷史上有名的揭示如何善用自己的
長處去對付對手的短處，從而在競技中獲勝的事例。
田忌賽馬
• 今以君之下駟與彼上駟，取君上駟與彼中駟，取君中駟與彼下駟。
賽局理論的啟示
1 2 3
要會選擇合作才能雙贏善用策略

如果選擇的機會擺在我我們生存在一個充滿競有效的策略、策略化的
們面前，我們要把握住爭的時代，生存似乎變思維不能保證你在每次
機會，對問題進行細緻得越來越難，然而正是的賽局中都能取得勝
深入的分析，審慎地運如此，才更需要與別人利，但是會增加你取勝
用智慧，作出使自己受合作。最能有效地運用的機會，或者讓你在逆
益最大的決策。合作法則的人生存得最境中獲得轉機。
久，而且這個法則適合
於任何領域。
策略決定成敗
• 秦始皇統一六國，名垂史冊，但當時秦國雖強大，卻比不上六國共同
的實力，倘若六國結盟。秦國必定不是對手。面對六國，秦國有三個
策略可以選擇，而秦始皇正是選擇了最優策略，才完成了統一大業。
• 策略一：不採取主動措施，任由六國結盟。
• 策略二：分別與六國結盟。
• 策略三：遠交近攻、分化離間。
策略決定成敗
• 策略一：不採取主動措施，任由六國結盟。
− 六國結盟實力強大，秦國不是對手，無法完成統一大業。
• 策略二：分別與六國結盟。
− 雖分散了六國實力，但有盟約在，秦國依然無法攻打其他六國，所以無法完成
統一。
• 策略三：遠交近攻、分化離間。
− 使六國無法統一實力，逐個攻擊，一一打敗，完成統一。
經濟發展離不開賽局理論
• 賽局理論最早的應用領域是經濟學，「賽局理論革命」被稱為經濟學史上除了
「邊際分析革命」、「凱因斯革命」之外的第三次偉大革命，它為人們提供了一
種解決經濟問題的新方法。
• 由於貢獻突出，諾貝爾經濟學獎分別於 1994 年、 1996 年和 2005 年頒發給賽局理
論學者。
• 賽局理論已經成為經濟學中思考和解決問題的一種有效手段。
訊息 : 制定策略的依據
• 「知己知彼，百戰百勝」是我們經常掛在嘴邊的一句話。這句話最初用於兵法，
說明在戰爭中掌握資訊的重要性。
• 不過，它現在不僅在商業競爭、政治鬥爭中大顯身手，還在我們的日常生活中得
到廣泛的應用。
• 當今的世界正處在一個資訊爆炸的時代。在人類歷史上，從來沒有一個時期的訊
息量像現在這樣多，資訊對人們生活產生的影響也從來沒有像今天這樣大。
• 這是一個資訊決定成敗的時代，誰掌握了資訊，誰就掌握優勢。
• 在一場賽局中，事先了解或是掌握相關的知識，必定可以增強行動的目的性，讓
自己的行為更有規畫。
• 例如，有甲、乙兩家超市，超市中出售的物品品質都差不多，只不過在價格上存
在一定的差異。如果我們事先了解到 A 物品和 C 物品在甲超市的價格較低，在乙
超市出售的 B 物品和 D 物品比較便宜。
• 那麼，我們在制訂購物計畫時，就會具有明確的目的性。我們可以到甲超市購買
A 和 C 兩種物品， B 和 D 物品則到乙超市購買。
• 又例如，「剪刀、石頭、布」是我們經常玩的猜拳遊戲。一旦了解了對方出拳的
習慣的話，就會增加我們獲勝的機率。
• 二十世紀 60 年代初期，法國和其殖民地阿爾及利亞之間發生了一場戰爭。這場戰
爭使法國政府花費了大量的軍費開支，讓法國政府背負上了沉重的經濟負擔。
• 這種經濟負擔已經嚴重影響到了國家的運轉。考慮到這一點，當時擔任法國總統
的戴高樂決定儘快結束這場戰爭，他打算和阿爾及利亞民族解放陣線的領導人本．
貝拉進行和談。
• 在進行一段時間的祕密談話後，雙方決定選擇一個合適的時間對外公開，然後進
入正式的談判。
• 不過，當時駐紮在阿爾及利亞的法國軍官們對戰爭懷有高漲的情緒。所以，當他
們聽聞這個消息後，對政府的這種決定心存不滿，打算進行兵變，以此來反對以
和平的方式結束對阿爾及利亞的戰爭。
• 由於軍隊遠在千里之外的非洲，當軍官們打算兵變的消息傳回法國時，戴高樂總
統焦急萬分。後來，參謀官提出一個辦法—向駐紮在阿爾及利亞的法國軍隊發放
上千臺簡易收音機。
• 這個主意從表面上看起來和需要解決的兵變毫無關係，所以並未引起軍官們的太
大注意，也未曾遭到軍官們的拒絕。
• 在他們看來，阿爾及利亞地處熱帶，當地的環境非常惡劣，如果透過收音機能讓
士兵們收聽一下家鄉的節目，緩解一下高度緊張的精神也是件很不錯的事情。
• 就在法國政府宣布與阿爾及利亞民族解放陣線開始正式談判的那天，法國士兵們
從收音機裡聽到了戴高樂的發言。
• 二戰期間，戴高樂流亡在外經常透過對外發表廣播講話，指揮法國軍民進行反法
西斯的鬥爭。
• 當時距二戰結束不久，法國軍隊中有很多士兵都曾追隨他參與過二戰。
• 所以，當戴高樂總統用二戰時期講話的語氣要求駐阿的法軍士兵們忠於自己的祖
國和政府，聽從自己號令的時候，士兵們非常自然地響應他的號召。在這種情況
下，軍官們只好放棄了兵變。
• 在研究中，發現假如是在一次性的賽局中，那麼在資訊上具有絕對優勢的賽局參
與者必然會從已占有的資訊中獲得收益。
• 假如賽局並非一次性，而是持續不斷地進行，那麼原本在資訊方面占有絕對優勢
的賽局參與者便會在賽局的過程中將自己所擁有的資訊洩露出去，使得資訊的不
均等狀態發生改變，導致賽局參與者所占有的資源發生變化，最終形成新的均衡。
資訊就是力量
• 我們知道，及時、準確地掌握對方的情況無疑是在戰爭賽局中獲得勝利不可或缺
的重要環節。
• 俗話說「商場如戰場」，資訊和情報對於商業競爭者來說是決定成敗的關鍵因素，
具有舉足輕重的作用。
資訊就是力量
• 在歐洲，有一個家族成功地控制著世界黃金市場和歐洲的經濟命脈長達上百年之
久。這就是羅斯柴爾德家族，而資訊和情報的收集便是該家族成功的祕訣。
英法滑鐵盧戰役
資訊就是力量
• 滑鐵盧戰役的最大贏家不是英國將軍惠靈頓，也不是英國政府，而是英國商人羅
斯柴爾德，他在數十萬陣亡將士的屍骨上建立了羅斯柴爾德金融王朝，這可是一
點也不算誇張。
• 1815 年 6 月 18 日，拿破崙指揮的法軍和英國將軍惠靈頓指揮的反法聯軍在比利
時的滑鐵盧展開大戰。因為法軍指揮上的疏漏，戰場形勢逆轉，法軍潰敗。
資訊就是力量
• 就在拿破崙的軍隊即將潰敗的時候，一個名叫羅斯伍茲的英國人悄悄撤離了戰場，
騎快馬奔向布魯塞爾，然後又轉到奧斯坦德港。深夜時分，他跳上了一艘有特別
通行證的快船。
• 第二天清晨，他在英國的弗克斯頓上岸之後找到了他的老闆內森 · 羅斯柴爾德，
把拿破崙軍隊戰敗的消息告訴了他。內森得知消息之後，立即騎馬奔向了倫敦的
股票交易所。
資訊就是力量
• 內森的商業眼光十分精準，他深知如果拿破崙的大軍勝利，則法國就會成為歐洲
的主宰，英國公債的價格就將大跌；相反，如果拿破崙大敗，則英國主導歐洲，
英國公債就會大漲特漲，因此在滑鐵盧戰爭期間，他派了大量的情報員前往戰場，
以獲取戰況。
• 內森不動聲色的來到了股票交易所，由於通訊的不發達，當時交易所里只有內森
一個人知道法軍戰敗的消息，他按照原計劃行事，先大量拋售英國公債，誘使大
批公債持有人和他一起狂拋。
• 大家都以為內森得到了戰爭的消息，以為反法聯軍失敗了，便開始跟著他狂拋，
結果英國公債的價格急速下降，不到半天，英國公債的價格之剩下了原價的百分
之七。
資訊就是力量
• 這個時候內森開始收網了，他開始悄無聲息的大量買進英國公債。
• 到了第三天，英國軍隊在滑鐵盧勝利的消息才傳到倫敦，而此時的羅斯柴爾德家
族因持有大量的英國國債，已經成了英國政府的最大債權人，牢牢握住了大英帝
國的經濟命脈。
• 能看到此次大戰中蘊藏著商機的人也不乏其人，但真正採取了行動，做了周密計
劃，並積極進行實施的，卻只有羅斯柴爾德一人。
• 機遇更青睞那些積極進取敢於創造奇蹟的人，借滑鐵盧戰役而騰飛的羅斯柴爾德
就是典型一例。
資訊就是力量
• 霍華德 · 菲利普 · 洛夫克拉夫特（ Howard Phillips Lovecraft ），美國小說作家說

『人類最古老而強烈的情緒，便是恐懼；而最古老最強烈的恐懼，便是對未知的
恐懼。』
• 人類總是對於未知的事物感到恐慌。
霍特林法則
• 通常只要看到一家麥當勞，附近一定也找得到肯德基或漢堡王。如果是競爭關係，
為什麼速食餐廳要蓋在附近，而不是離得遠遠的搶當地客人呢？
• 要了解這個道理，你要先理解博弈論中的基礎概念：霍特林法則。
霍特林法則
• 這一類存在競爭關係的商店，總是在附近開店，並且通常開在彼此步行距離範圍
之內。
• 這個現象讓人驚訝。為什麼這些商場不在遠離競爭對手的地方開店以減少競爭呢？
• 霍特林法則屬於經典博弈論範疇，用於模擬公司選址在何處以及為何選址所處的
位置。
霍特林法則法則 - 遊戲開始
• 詳細瞭解它之前，讓我們先來玩一個小遊戲。
• 玩法如下：
− 海灘上有 2 個競爭對手（為了數學上的簡單性，假設一個從 -1 到 1 的線性空
間）
− 他們銷售相同的產品（即客戶在競爭對手之間沒有偏好，所以可以排除價格因
素。注意這也意味著「市場份額」也取決於他們選擇的位置）；
− 他們的「商店」可以選址在沿著海灘的任何地方；
− 遊戲重複進行。
• 玩家的目標是獲得最大的市場份額（或獲取海灘面積大的玩家獲勝）。
• 看到兩個熱狗攤兒，每個都從海灘的兩端開始，分別控制著一半的海灘熱狗市場。
• 然而，突然有個增加市場份額的機會。
• 如果 Red hot dog 供應商移動到 0 標記，它的市場便從 -1 到 0 的份額擴大了 0 到
0.5 ，而 Blue 供應商保留 0.5 到 1 。
• 最佳解決方案是讓每個熱狗供應商準確地位於中間位置，因為他們可以進入最大
的市場，而無需讓競爭對手重新選擇定位並從中獲取市場份額。
• 這個結果是位置遊戲里的納許平衡，並且是 Hotelling 定律的解決方案 —— 競爭
對手彼此靠近以最大化市場份額。
霍特林法則
• 現實生活中，霍特林法則怎麼玩？
− 麥當勞和漢堡王或者肯德基
− 全食超市 Whole Foods Market 和喬氏超市 Trader Joes
− 加油站（想想同一個交叉路口有多少加油站）
− 政治–想想「中間競爭」的概念
• 零售超市選址是其中一個很有趣的例子，其以極低的利潤銷售幾乎相同的產品。
霍特林法則
• 深入美國各大零售商的據點位置
霍特林法則
• 看看 Target 和沃爾瑪，可以看到一些緊密聚集在一起的商店：
霍特林法則
• 這些地圖肯定表明霍特林法則在起作用。
• 計算了商店之間的距離後，丹佛地區最近的 Target 和沃爾瑪之間的平均距離僅為
2.09 英里（約 3.3 公里）。
QuickQuiz
7. The antitrust laws aim to

a. facilitate cooperation among firms in oligopolistic industries.
b. encourage mergers to take advantage of economies of scale.
c. discourage firms from moving production facilities overseas.
d. prevent firms from acting in ways that reduce competition.
QuickQuiz
8. Antitrust enforcement is controversial mainly because

a. cooperative domestic firms are best equipped to deal with international competitors.
b. some business practices that seem anticompetitive may in fact have legitimate
purposes.
c. excessive competition can drive some firms out of business, causing job losses.
d. vigorous enforcement can reduce business profitability, lowering shareholder value.
18-4
Conclusion
Conclusion
• Oligopolies would like to act like monopolies, but self-interest drives them
toward competition. Where oligopolies end up on this spectrum depends on
the number of firms in the oligopoly and the extent to which the firms
cooperate. The story of the prisoners’ dilemma shows why oligopolies can
fail to maintain cooperation, even when cooperation is in their best interest.
Conclusion
• Policymakers regulate the behavior of oligopolists through the antitrust

laws. The proper scope of these laws is the subject of ongoing debate.
Although price fixing among competing firms clearly reduces economic
welfare and should be illegal, some business practices that appear to reduce
competition may have legitimate if subtle purposes. As a result,
policymakers need to be careful when they use the substantial powers of the
antitrust laws to place limits on firm behavior.
Chapter in a Nutshell
• Oligopolists maximize their total profits by forming a cartel and acting like
a monopolist. Yet, if oligopolists make decisions about production levels
individually, the result is a greater quantity and a lower price than under the
monopoly outcome. The larger the number of firms in the oligopoly, the
closer the quantity and price will be to the levels that would prevail under
perfect competition.
• The prisoners’ dilemma shows that self-interest can prevent people from
maintaining cooperation, even when cooperation is in their mutual interest.
The logic of the prisoners’ dilemma applies to many situations, including
arms races, common-resource problems, and oligopolies.
• Policymakers use the antitrust laws to prevent oligopolies from engaging in

behavior that reduces competition. The application of these laws can be
controversial, because some behavior that can appear to reduce competition
may in fact have legitimate business purposes.
Think-Pair-Share Activity
New on campus in a small town, your best friend, Elijah, is amazed that both grocery stores in
town are open 24 hours. He says “This is a great idea! Staying open all the time must mean that
both stores make lots of profit!”
A. Since there are only two grocery stores in town, is it likely they make “lots of profit” by
staying open 24 hours?
B. Can you use prisoners’ dilemma to explain why the stores are open 24 hours a day?
Self-Assessment
• What kinds of behavior do the antitrust laws prohibit?
Summary
Click the link to review the objectives for this presentation.

Link to Objectives
Economics in our life
• Why do schools require students to wear uniforms?
• Wearing school uniforms, on the one hand, allows students to dress

uniformly and neatly, showing a certain mental outlook and school
characteristics, and also facilitates school differentiation and management;
• On the other hand, students' clothing can be standardized to prevent
students from comparing themselves to each other in clothing, so that
students can concentrate on their studies.
• Letting students wear school uniforms will restrict students from expressing
themselves through clothing, thereby reducing students' financial
investment and emotional costs in clothing, and avoiding the negative
effects of clothing competitions.
• This will be of greater benefit to the entire student body, so it will be
implemented.
Question Banks
Question Banks
1. An oligopoly firm is similar to a monopolistically competitive firm in that (1.1-1)

A. both firms face the prisoner's dilemma.
B. both operate in a market in which there are entry barriers.
C. both firms have market power.
D. both firms are in industries characterized by an interdependent firm.
Question Banks
2. Which of the following statements is correct? (1.1-2)

A. For all firms, marginal revenue equals the price of the good.
B. Only for competitive firms does average revenue equal the price of the good.
C. Marginal revenue can be calculated as total revenue divided by the quantity sold.
D. Only for competitive firms does average revenue equal marginal revenue.
Question Banks
3. If two firms comprise the entire soft drink market, the market would be a(n) (1.1-1)
A. Nash equilibrium.
B. monopolistically competitive market.
C. oligopolistically competitive market.
D. duopoly.
Question Banks
4. If an oligopolist is part of a cartel that is collectively producing the monopoly level of

output, then that oligopolist has the incentive to increase production with the aim of (1.1-
2)
A. increasing prices.
B. increasing profits for the group of firms as a whole.
C. increasing profits for itself, regardless of the impact on profits for the group of firms
as a whole.
D. decreasing costs of production.
Question Banks
5. Other things the same, in which case is the quantity produced the highest? (1.1-2)
A. There is one firm.
B. There are two firms that successfully collude.
C. There are two firms in Nash equilibrium.
D. There are a very large number of firms.
Question Banks
6. The prisoners‘ dilemma provides insights into the (1.1-2)

A. difficulty of maintaining cooperation.
B. benefits of avoiding cooperation.
C. benefits of government ownership of monopoly.
D. ease with which oligopoly firms maintain high prices.
Question Banks
7. An equilibrium occurs in a game when (1.1-2)

A. price equals marginal cost.
B. quantity supplied equals quantity demanded.
C. all independent strategies counterbalance all dominant strategies.
D. all players follow a strategy that they have no incentive to change.
Question Banks
8. Refer to Table. Suppose we observe that the price of a
gallon of gasoline in Driveaway is $2. Given this
observation, which of the following scenarios is most
likely? (1.1-2) Table The table shows the town of Driveaway’s demand
schedule for gasoline. Assume the town’s gasoline
seller(s) incurs a cost of $2 for each gallon sold, with no
A. There is one seller of gasoline in Driveaway. fixed cost.
Quantity (in
B. There are two sellers of gasoline in Driveaway. gallons) Price Total Revenue
0 $8 $0
50 7 350
C. There are a few sellers of gasoline in Driveaway, but 100 6 600
the number of sellers exceeds two. 150 5 750
200 4 800
250 3 750
D. There are many sellers of gasoline in Driveaway. 300 2 600
350 1 350
400 0 0
Question Banks
9. Refer to Table 2. Suppose we observe that the price of
a gallon of gasoline in Driveaway is $5; we observe as
well that a particular seller’s profit is $150. Given this Table The table shows the town of Driveaway’s demand
observation, which of the following scenarios is most schedule for gasoline. Assume the town’s gasoline
seller(s) incurs a cost of $2 for each gallon sold, with no
likely? (1.1-2) fixed cost.
Quantity (in
A. The market for gasoline in Driveaway is a monopoly. gallons) Price Total Revenue
0 $8 $0
B. There are two identical sellers of gasoline in Driveaway, and the sellers collude. 50 7 350
100 6 600
C. There are two identical sellers of gasoline in Driveaway, and the sellers do not 150 5 750
collude. 200 4 800
250 3 750
D. There are three identical sellers of gasoline in Driveaway, and the sellers 300 2 600
collude. 350 1 350
400 0 0
Question Banks
10. As the number of firms in an oligopoly market (1.1-2)

A. decreases, the price charged by firms likely decreases.
B. decreases, the market approaches the competitive market outcome.
C. increases, the market approaches the competitive market outcome.
D. increases, the market approaches the monopoly outcome.
Question Banks
11. The prisoners’ dilemma game (1.1-2)

A. provides insight into why cooperation is individually rational.
B. provides insight into why cooperation is difficult.
C. is a game in which neither player has a dominant strategy.
D. is a game in which exactly one of the two players has a dominant strategy.
Question Banks
12. Refer to Table. The dominant strategy (1.1-

2)
Table There are just two producers of a certain product. Each is considering offering
A. for both firms is to offer the discount. promotional discounts.
Firm A
B. for both firms is to not offer the discount. Does not offer discount Offers discount
Does not offer Firm A profit = $90,000 Firm A profit = $120,000
C. for firm A is to offer the discount. The Firm B
discount Firm B profit = $90,000 Firm B profit = $70,000
dominant strategy for firm B is to not offer Offers discount

Firm A profit = $70,000 Firm A profit = $80,000
Firm B profit = $120,000 Firm B profit = $80,000
the discount.
D. for firm A is to not offer the discount. The
dominant strategy for firm B is to offer the
discount. Mankiw, Principles of Economics, Tenth Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted
Question Banks
13. Refer to Table. At the Nash equilibrium, how much profit will Firm A earn? (1.1-2)
A. $120,000
Table There are just two producers of a certain product. Each is considering offering
promotional discounts.
B. $90,000 Firm A
Does not offer discount Offers discount
C. $80,000 Does not offer Firm A profit = $90,000 Firm A profit = $120,000
discount Firm B profit = $90,000 Firm B profit = $70,000
D. $70,000 Firm B
Firm A profit = $70,000 Firm A profit = $80,000
Offers discount
Firm B profit = $120,000 Firm B profit = $80,000
Question Banks
14. Which of the following is correct? When oligopolies collude (1.1-2)

A. they make higher profits and consumers of the product are better off.
B. they make higher profits but consumers of the product are worse off.
C. they make lower profits and consumers of the product are better off.
D. they make lower profits and consumers of the product are worse off.
Question Banks
15. From society’s standpoint, cooperation among oligopolists is (1.1-2)

A. desirable, because it leads to less conflict among firms and a wider variety of products
for consumers.
B. desirable, because it leads to an outcome closer to the competitive outcome than what
would be observed in the absence of cooperation.
C. undesirable, because it leads to output levels that are too low and prices that are too
high.
D. undesirable, because it leads to output levels that are too high and prices that are too
high.
Question Banks
16. Refer to Table. The dominant strategy For Firm

A is to produce (1.1-2)
Table. This table shows a game played between two firms,
A. 10 units and the dominant strategy for Firm B is to
Firm A and Firm B. In this game each firm must decide how
produce 10 units.
much output (Q) to produce: 10 units or 12 units. The profit
for each firm is given in the table as (Profit for Firm A, Profit
B. 10 units and the dominant strategy for Firm B is to
for Firm B).
produce 12 units.
Firm B
C. 12 units and the dominant strategy for Firm B is to Q=10 Q=12
produce 10 units. Q=10 (48, 48) (20, 60)

Firm A
Q=12 (60, 20) (38, 38)
D. 12 units and the dominant strategy for Firm B is to
produce 12 units.

Mankiw PrinciplesOfEconomics 10e PPT CH18 Oligopoly

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Mankiw PrinciplesOfEconomics 10e PPT CH18 Oligopoly

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Principles of

• The market for tennis balls is an example of an oligopoly. The essence of

• The analysis of oligopoly offers an opportunity to introduce game theory,

• In a market that is either perfectly competitive or monopolistically

By the end of this chapter, you should be able to:

*Words accompanied by an asterisk are key terms from the chapter.

• Because an oligopolistic market has only a small group of sellers, a key

• Duopoly ( 雙頭寡占 ) is an oligopoly with only two members

• To understand the behavior of oligopolies, let’s consider an oligopoly with

• If water market is perfectly competitive

*Words accompanied by an asterisk are key terms from the chapter.

• Because we have assumed that the marginal cost of pumping additional

• What outcome should we expect from our duopolists?

• Once a cartel is formed, the market is in effect served by a monopoly

• Our two producers produce a total of 60 gallons, which sell at a price of

Duopoly outcome with collusion: Each gas station P Q

• If both stick to the agreement, each earns profit = P Q

• Market quantity = 6,000 7 4,400

• Oligopolists cannot form cartels and earn monopoly profits

• In the absence of a binding agreement, monopoly outcome is unlikely

• When firms in an oligopoly individually choose production to maximize profit

• Nash equilibrium ( 納許均衡 )*

*Words accompanied by an asterisk are key terms from the chapter.

• In addition, antitrust laws prohibit explicit agreements among oligopolists

• Jack would reason as follows:

• “Right now, my profit is $1,600. Suppose I increase my production to 50

• John Nash ： A Beautiful Mind ( 美麗境界 )

• A Nash equilibrium is a situation in which economic actors interacting with

• In summary, when firms in an oligopoly individually choose production

A. If Casey’s increases Q to 3,800 P Q

Source: IGM Economic Experts Panel, September 25, 2018.

1. The key feature of an oligopolistic market is that

2. If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a

4. As the number of firms in an oligopoly grows, the industry approaches a level of

• As we have seen, oligopolies would like to reach the monopoly outcome.

• In particular, we focus on a “game” called the prisoners’ dilemma ( 囚徒

*Words accompanied by an asterisk are key terms from the chapter.

• In this game between two criminals

• Consider first Bonnie’s decision.

• In the language of game theory, a strategy is called a dominant strategy if

• 膽小鬼賽局（ the game of chicken ），是博弈論中兩個玩家對抗的模

• Oligopolies have trouble maintaining monopoly profits

• In this game between Jack and Jill, the

• Once again, I am better off with higher production.

• This example illustrates why oligopolies have trouble maintaining

• In this game between two countries, the

• When firms pump oil from a common

• The prisoners’ dilemma describes many of life’s situations, and it shows

• In some cases, the noncooperative equilibrium is bad for society as well as

• By contrast, in the case of oligopolists trying to maintain monopoly

• Put differently, the invisible hand guides markets to allocate resources

• The prisoners’ dilemma shows that cooperation is difficult. But is it

• To see why cooperation is easier to enforce in repeated games ( 重複性賽

• Cartels sometimes manage to maintain collusive arrangements, despite

5. The prisoners’ dilemma is a two-person game illustrating that

6. Two people facing the prisoners’ dilemma may cooperate if

• One of the Ten Principles of Economics in Chapter 1 is that governments

• To move the allocation of resources closer to the social optimum,

• The Sherman Antitrust Act, 1890

• Governments can sometimes improve market outcomes

• One way that policy discourages ( 阻礙 ) cooperation is through the

• Every person who shall monopolize, or attempt to monopolize, or combine

• The Sherman Act elevated agreements among oligopolists from

• The players: American Airlines and Braniff Airways

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