Course: Principles of Microeconomics (ECON 1) · Silver Oak University (fictional sample) · Prof. Kessler
Focus: Monopolistic Competition & Oligopoly · Objective 7 · SLO A & B

📋 Module Overview Page — "Start Here" (Canvas: Page, published)

Week 12 — Monopolistic Competition & Oligopoly

You've built the bookends of market structure — perfect competition (many firms, identical products, zero long-run profit) and monopoly (one seller, barriers, market power). This week you add the two messy middle cases that dominate the real economy: monopolistic competition (think coffee shops, clothing brands, restaurants) and oligopoly (airlines, wireless carriers, streaming platforms). The tools: product differentiation, the long-run zero-profit result, and — the week's centerpiece — game theory. We'll use a payoff matrix to discover why rival firms so often end up in a mutually bad outcome even when they could do better by cooperating. That pattern has a name: the prisoner's dilemma.

The big question: When a small number of firms compete strategically, why do they so often end up worse off than if they had cooperated — and what keeps them stuck there?

By the end of this week, you can:

• identify the defining traits of monopolistic competition (product differentiation, free entry, many sellers) and explain why free entry drives economic profit to zero in the long run — even with market power — and what excess capacity means;
• identify the defining traits of oligopoly (few interdependent firms, significant barriers to entry, strategic interaction);
• read a payoff matrix, find each firm's dominant strategy, and identify the Nash equilibrium;
• explain why the Nash equilibrium in a prisoner's dilemma is worse for both players than the cooperative outcome — and why rational firms end up there anyway;
• distinguish the Nash equilibrium (stable but possibly bad) from the cooperative outcome (jointly better but unstable).

Do this, in order:

1. Read & watch — the Week 12 resources (≈40 min). → Readings & Resources page
2. Lecture Tutorial — work through monopolistic competition, oligopoly & game theory with your AI tutor (≈45 min). Due Sun, Nov 22. → submit the chat share link + summary
3. Practice Exercises — 6 quick reps, ungraded (≈15 min).
4. Quiz 12 — 10 questions, closed to AI (≈20 min). Due Sun, Nov 22.
5. Discussion 12 — oligopoly & cartels: why do they break down? Initial post Fri, Nov 20, replies Sun, Nov 22.
6. Assignment 12 — the payoff matrix & market structure problem set (100 pts). Due Sun, Nov 22.
7. Workshop 12 — Graph & Model Workshop — work through the pricing game payoff matrix, find dominant strategies and the Nash equilibrium, and explain the prisoner's dilemma (50 pts). Due Sun, Nov 22.

A note before you start: the prisoner's dilemma is one of the most famous results in social science — it shows up in arms races, environmental negotiations, and business competition alike. The logic is elegant and a little unsettling: individually rational choices can produce collectively bad outcomes. This week you'll understand exactly why.

📣 Welcome Announcement (Canvas: Announcement; available_from_offset_days = 0 — posts Mon, Nov 16)

Subject: Week 12 — the game theory week (and it's more fun than it sounds) 🎮

Hi everyone,

We've reached the part of the course I think students remember longest: game theory. Not the video-game kind — the "how does a firm decide what to do when its profits depend on what its rival does?" kind.

This week you'll learn why the airline industry, wireless carriers, and OPEC all face the same basic problem: when you and your rival are both better off cooperating but each has a private incentive to cheat, you can end up stuck in a bad outcome neither of you wanted. That's the prisoner's dilemma, and once you see it, you'll recognize it everywhere.

We're also tying up monopolistic competition — the structure that covers most of what you actually buy (coffee, clothes, restaurants, streaming services). The key result: free entry erodes profit to zero in the long run, even when every firm has its own little slice of market power.

This week, don't miss:

• The idea that in a prisoner's dilemma, individually rational choices = collectively bad outcomes — the Nash equilibrium is stable but not jointly best.
• The long-run zero-profit result in monopolistic competition: free entry means economic profit = 0 eventually, and firms operate with excess capacity.
• The payoff matrix — four numbers that contain a complete strategic story once you know how to read them.

Start with the Module Overview, then the readings, then your AI Lecture Tutorial. The Workshop this week has you work through the payoff matrix step by step — it's the most satisfying part.

See you in class,
Prof. Kessler