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monopolist. 08 (186-221) EMC Chap 08 11/17/05 5:28 PM Page 211 Focus Questions An Oligopolistic
Market What are the characteristics of an oligopolistic market?
What are some examples of an oligopolistic
Are sellers in an oligopolistic market price
takers or price searchers?
What are cartel agreements? Key Terms
price discrimination Characteristics of an
Oligopolistic Market How Much Competition Do
Oligopolists Face? The following three conditions characterize an oligopolistic market: The last section developed a way to think
about sellers in various markets. We think
about, or categorize, sellers according to
how much competition they face. In turn,
how much competition a seller faces
depends on how close to unique a seller’s
product is and how easy it is for new sellers
to enter the market and compete with it.
With this information as background, let’s
How close to unique is an oligopolist’s
product? According to the conditions that
characterize oligopoly, an oligopolist’s
product is not unique. Some oligopolists
produce an identical good (e.g., steel), and
others produce a slightly differentiated
product (e.g., cars). We would expect, then,
that an oligopolistic seller faces fairly
intense competition from current sellers.
For example, Ford Motor Company faces
stiff competition from General Motors. In
the world market for cars, Ford faces
extremely stiff competition from Japanese 1. It has few sellers.
2. Firms produce and sell either identical
or slightly differentiated products.
3. The barriers to entry are significant,
which means that entry into the market
Exhibit 8-3 lists the conditions that characterize each of the four markets discussed
in this chapter. Oligopolistic Firms Are Price
Like monopolistic and monopolistic
competitive firms, oligopolistic firms are
price searchers. In other words, they have
some control over the price they charge.
They can raise the price of their good and
still sell some of the good they produce
(which is not the case for a price taker). oligopolistic market
A market structure characterized by (1) few sellers, (2) the production
and sale of either identical or slightly differentiated products, and
(3) significant barriers
to entry. Section 4 An Oligopolistic Market 211 08 (186-221) EMC Chap 08 11/17/05 EXH I BIT 5:28 PM 8-3 Page 212 Conditions That Characterize
Conditions That Characterize
services sold in
this type of
Identical No barriers
barriers No control
No control Wheat, corn,
high barriers Considerable
control Water, electricity,
first-class mail Monopolistic
differentiated No barriers
No barriers Yes,
Yes, but not
as much as
as much as
monopoly Clothing, meals
at restaurants Oligopolistic
Few Identical or
high barriers Yes,
Yes, but not
as much as
as much as
monopoly Cars, cereal Market
Market car companies such as Toyota, Nissan,
Honda, and Mitsubishi.
Where the oligopolistic seller does not
face too much competition is from potential
sellers. It is difficult to enter an oligopolistic
market, so current oligopolistic sellers are
shielded from new sellers to some degree. QUESTION: I always thought that the more sellers in a given market (for
example, the more sellers of, say, computers), the more competition in that
market. Now it sounds like there can be
quite a bit of competition in a market
even with only two or three sellers. Is this
ANSWER: Yes. Competition can exist in a
market with three sellers and with 300
sellers. For example, think back to the
days of only three television networks:
ABC, NBC, and CBS. The three networks stiffly competed with each other.
Today more competition in the television
market exists largely because of cable.
Still, the television market experienced
competition before cable. 212 Chapter 8 Competition and Markets Identifying Oligopolistic
Economists determine whether a market
is oligopolistic by looking at the percentage
of sales accounted for by the top four firms in
the industry. If only a few firms account for a
large percentage of sales, then the market is
considered oligopolistic. For example, suppose an industry consists of 10 firms, and the
total revenue of the industry is $100 million.
The four firms with the highest sales generate
$80 million in revenue. In other words, the
top four firms account for 80 percent of total
revenues in the industry (because $80 million is 80 percent of $100 million), and th...
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This document was uploaded on 01/16/2014.
- Winter '14