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Unformatted text preview: Chapter 13 Oligopoly Concentration Ratio (Table 13-1) measures the extent of competition in an industry Rule-of Thumb: When 4 firms account for more than 40% of an industry's sales = an oligopoly Competitive Industry vs. Oligopoly (Fig. 13-1) "Economies of scale" represent the strongest "barrier to entry" to an Oligopoly (The LRAC curves illustrated in the figure would be representative for a typical firm in each industry several large firms would make up the oligopoly industry.) Collusion an agreement among firms to charge the same price or otherwise not to compete. ( This is a temptation for oligopolists but is against U.S. law) A Cartel a group that colludes by agreeing to restrict output to increase prices & profits ( an example would be OPEC) Dominant Strategy (among olgopolists) choosing your best strategy no matter what strategy others use. (See Strategy for Bidding on eBay; page 449) ( Notes for Figure 13-1):
1 LRAC1 For an industry where economies of scale aren't important; Where each individual producer accounts for a small amount of total sales for that industry; i.e., the restaurant industry very competitive LRAC2 Where large scale production (sales) is necessary for a producer to reach its minimum ATC level; i.e., large discount department stores where a "few" individual producers (sellers) account for a large percentage of industry sales An oligopoly's profitability depends on its "interaction" with other firms in its industry. In addition to deciding on prices to charge & quantity to produce, its business strategy must include: How much advertising it should do; Which new technologies to adopt (i.e., Wal-Mart's early use of bar codes); Managing relations with suppliers; Which new markets to enter 2 ...
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