Unit 5: Competition
Economists organize firms into various categories known as market structures. A monopoly is a single firm in an industry which, even in the absence of competition, still needs consumer demand to reach equilibrium. Unregulated monopolies are not efficient and charge higher prices than in a competitive market structure.
Oligopolies have only a handful of firms in an industry and may either cooperate or compete. Cooperative oligopolies can work together to charge higher prices and limit choices. Competitive oligopolies have lower prices and offer more, although limited, choices. The choice to cooperate or compete can be described using game theory, which is a set of rules and assumptions about how firms make choices.
Knowledge is power. Information is not equally and perfectly distributed to all economic agents. Firms and individuals must make choices with the limited amount of data and information available. Asymmetrical information can lead to unequal and inefficient outcomes.
Completing this unit should take you approximately 22 hours.
Upon successful completion of this unit, you will be able to:
- explain both competitive markets, for which basic models of supply and demand are most appropriate, and markets in which agents act strategically, for which game theory is the more appropriate tool;
- compare and contrast arguments concerning business and politics, and make good conjectures regarding the possible solutions; and
- apply basic tools that are used in many fields of economics, including household economics, labor economics, production theory, international economics, natural resource economics, public finance, and capital markets.
5.1: Monopoly
Read this chapter. Consider which monopolies exist in your local area. Recall that a monopoly has 100% of a market. What role, if any, does regulation play?
Listen to Lecture 17.
Watch these videos. Consider the role of deadweight loss and how it affects society.
5.2: Game Theory
Read this chapter. Ponder the basic decision to cooperate or compete in a game. What broader implications does this have for business economists?
Listen to Lecture 23.
5.3: Imperfect Competition
Read this chapter. Oligopolies are closely related to game theory. Analyze how the two are related in terms of their underlying theories.
Listen to Lectures 20 and 21.
5.4: Uncertainty and Information
Read this chapter. Think about the role of signaling in your own life. How much time, money, and effort do you expend to convince others of something?
5.5: Auctions
Read this chapter. Think about the role of information in the auction process. How clear and transparent are most auctions? What are some imperfections in auctions?
Listen to Lectures 12 and 13.
Unit 5 Assessment
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.