Principles of Economics- Mankiw (5th) 340

Principles of Economics- Mankiw (5th) 340 - 350 PA R T F I...

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350 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY natural to start the study of industrial organization with these polar cases, for they are the easiest cases to understand. Yet many industries, including the tennis ball industry, fall somewhere between these two extremes. Firms in these industries have competitors but, at the same time, do not face so much competition that they are price takers. Economists call this situation imperfect competition. In this chapter we discuss the types of imperfect competition and examine a particular type called oligopoly. The essence of an oligopolistic market is that there are only a few sellers. As a result, the actions of any one seller in the market can have a large impact on the profits of all the other sellers. That is, oligopolistic firms are interdependent in a way that competitive firms are not. Our goal in this chap- ter is to see how this interdependence shapes the firms’ behavior and what prob- lems it raises for public policy. BETWEEN MONOPOLY AND PERFECT COMPETITION
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