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20 Oligopoly - Oligopoly 12:02 AM How do you know if the...

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Oligopoly 2/18/11 12:02 AM How do you know if the market’s an oligopoly? Measuring Market Concentration Concentration ratio : the percentage of the market’s total output supplied by its four largest firm; if this is > certain number, it defines the market as an oligopoly The higher the concentration ratio, the less competition in the market Oligopoly is a market structure with high concentration ratios Concentration Ratios in Certain U.S. Industries Chart on slide 3 i.e. Video game consoles, top four companies hold 100% of market’s output, so definitely an oligopoly Oligopoly Oligopoly : a market structure in which only a few sellers offer identical (oil) or differentiated products (cereal) Strategic behavior in oligopoly: o A firm’s decisions about P or Q can affect other firms and cause them to react. The firm will consider these reactions when making decisions EXAMPLE: Cell Phone Duopoly in Smalltown (graphs on slides 5-7) Small town of 140 residents The good: cell phone service with unlimited anytime minutes and free phone
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