Week 12 — Monopolistic Competition & Oligopoly
Why this matters
A small-business owner deciding whether to match a rival's discount and a shopper choosing among neighborhood repair shops both live in these markets.
In plain language
Most stores you visit are not lonely monopolies and not anonymous stalls selling identical goods. They sit in between. This week you study two of those in-between markets. In monopolistic competition (many sellers whose products differ a little, with new sellers free to open), each shop has a small amount of pricing power, but newcomers keep its profit from lasting. In oligopoly (a market run by a few rivals who watch each other), each firm's best move depends on what the others do, and you will use a small table of payoffs to see why rivals so often cut prices they would rather keep high.
- Already covered: Week 10 took price as given; Week 11 had one seller.
- This week: many differentiated sellers, a few rivals, and payoff tables.
- How they connect: every firm still sets MR = MC.
- Where we're going next: Week 13 turns to labor markets.
Focus
Why might two rival shops both end up charging low prices when both would earn more charging high ones?
By the end of this module, you should be able to:
- [ ] explain why entry drives a differentiated seller's profit to zero
- [ ] find each player's dominant strategy in a payoff matrix
- [ ] find and test a Nash equilibrium
- [ ] explain the prisoner's dilemma and why cartels break down
To-do
Plan your week
- Read Chapter 12 (40–50 minutes), then the lecture and slides.
- Work the tutorial (60–90 minutes) and practice set (15–25 minutes).
- Do the Model Workshop (90 minutes), discussion, and assignment.
- Take the quiz.
This week's checkpoint: from a two-by-two payoff table, find each player's dominant strategy and the Nash equilibrium.
You've got this
Compare within each column, and ask your instructor early.
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