Ch 13 - Oligopoly

Ch 13 - Oligopoly - CHAPTER 13 OLIGOPOLY Oligopoly: - An...

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CHAPTER 13 OLIGOPOLY Oligopoly: - An oligopoly is a form of industry (market) structure characterized by a few dominant firms. Products may be homogeneous or differentiated. - Firms in an oligopoly are interdependent. The actions of one firm affect the profits of the other firms. - Examples: Oil, Automobiles, Steel & Aluminum, Petrochemicals, and Computers - The barriers to entry are: - Natural: - Scale economies, Patents, and Technology - Government barriers to entry - Substantial investment in an advertising - Strategic action: Flooding the market, and Controlling an essential input Concentration Ratios: - Economists use concentration ratios to measure the degree of concentration in a market. - A 4-firm concentration ratio is the percentage of the market output produced by the 4 largest firms. Oligopoly & Collusion: - Conditions in this market encourage collusion Best off co-operating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost => incentive to collude - Advantages of collusion to the firms include: - Increased profitability - Decreased uncertainty - Restricted new entries - A duopoly is an oligopoly with only two members - No single, unified model of oligopoly exists Equilibrium in an Oligopolistic Market: - In perfect competition, monopoly, and monopolistic competition the producers did not have to consider a rival’s response when choosing output and price - In oligopoly the producers must consider the response of competitors when choosing output and price & the response to your decisions - In other words, the behaviour of any one firm in an oligopoly depends to a great extent on the behaviour of others The Collusion Model:
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This note was uploaded on 04/18/2008 for the course MGCR 293 taught by Professor Salmasi during the Fall '08 term at McGill.

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Ch 13 - Oligopoly - CHAPTER 13 OLIGOPOLY Oligopoly: - An...

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