ch16 - Chapter 16 Oligopoly WHATS NEW IN THE THIRD EDITION:...

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Unformatted text preview: Chapter 16 Oligopoly WHATS NEW IN THE THIRD EDITION: Two new In the News boxes have been added: The Growth of Oligopoly and Antitrust in the New Economy. The discussions of OPEC and Microsoft have also been updated. LEARNING OBJECTIVES: By the end of this chapter, students should understand: what market structures lie between monopoly and competition. what outcomes are possible when a market is an oligopoly. the prisoners dilemma and how it applies to oligopoly and other issues. how the antitrust laws try to foster competition in oligopolistic markets. CONTEXT AND PURPOSE: Chapter 16 is the fourth chapter in a five-chapter sequence dealing with firm behavior and the organization of industry. The previous two chapters discussed the two extreme forms of market structure competition and monopoly. The market structure that lies between competition and monopoly is known as imperfect competition . There are two types of imperfect competitionoligopoly and monopolistic competition. Chapter 16 addresses oligopoly while the final chapter in this sequence, Chapter 17, addresses monopolistic competition. The purpose of Chapter 16 is to discuss oligopoly a market structure in which only a few sellers offer similar or identical products. Since there are only a few sellers in an oligopolistic market, oligopolistic 57 OLIGOPOLY 16 58 Chapter 16/Oligopoly firms are interdependent while competitive firms are not. That is, in a competitive market, the decisions of one firm have no impact on the other firms in the market while in an oligopolistic market, the decisions of any one firm may affect the pricing and production decisions of the other firms in the market. Chapter 16/Oligopoly 59 KEY POINTS: 1. Oligopolists maximize their total profits by forming a cartel and acting like a monopolist. Yet, if oligopolists make decisions about production levels individually, the result is a greater quantity and a lower price than under the monopoly outcome. The larger the number of firms in the oligopoly, the closer the quantity and price will be to the levels that would prevail under competition. 2. The prisoners dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest. The logic of the prisoners dilemma applies in many situations including arms races, advertising, common-resource problems, and oligopolies....
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ch16 - Chapter 16 Oligopoly WHATS NEW IN THE THIRD EDITION:...

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