Mostly
summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 17 of 36 - Oligopoly
Section 14 of 23
…
In the game theory prisoners’ dilemma, the
police question two suspects.
Lack of cooperation between the
suspects is socially desirable, it results in conviction of more criminals.
The prisoners' dilemma is a dilemma for
the prisoners, but it results in a gain for society.
…
The prisoners' dilemma describes many
of life's situations.
It shows cooperation can be difficult
to maintain even when cooperation would make both players in the game better
off.
This lack of cooperation is a problem
for those involved in these situations.
But in some cases,
the non-cooperative equilibrium is bad for both the players and society.
In the arms-race game, the United States
and the Soviet Union end up at the equilibrium of armed and at mutual risk.
In the common-resources game, the cost
of the extra wells dug by Texaco and Exxon are waste.
In both these cases, society is better off
if the two players reach the cooperative
outcome.
In the case of oligopolists trying to
maintain monopoly profits, lack of cooperation is desirable for overall society,
price is lower and supply is greater.
The monopoly outcome is good for the
oligopolists, but is bad for consumers.
The competitive outcome, where price =
marginal cost, is best for society because it maximizes consumer + supplier total
surplus.
When oligopolists do not cooperate, the
quantity they produce is closer to the maximized total surplus optimal quantity.
The invisible hand guides markets to
allocate resources efficiently only when markets are competitive.
Markets are competitive only when competing
firms do not cooperate.
… …
society benefits
shakai beneki
社会便益
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