Chapter 15 econ

Chapter 15 econ - Chapter 15 Oligopoly The Prevalence of...

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Chapter 15 Oligopoly The Prevalence of Oligopoly -An industry with only a few sellers is known as an oligopoly -a firm in such an industry is known as an oligopolist -they compete with each other for sales -firms in a perfectly competitive industry take the price at which they can sell their product as given Each of these firms knew that its decision about how much to produce would affect the market price -like monopolists each of the firms had some marker power so competition in this industry isn’t perfect -economists refer to a situation in which firms compete but also possess market power enables them to affect market prices as imperfect competition -two important forms of imperfect competition: oligopoly and monopolistic competition (oligopoly is the more important in practice) -many familiar goods and services are supplied by only a few competing sellers which means that the industries in question are oligopolies -an oligopoly isn’t necessarily made up of large firms -the question is how many competitors there are -when a small town only has two grocery stores, grocery service there is just as much an oligopoly as air shuttle service between New York and Washington -oligopoly is the result of the same factors that sometimes produce monopoly, but in somewhat weaker form -the most important source of oligopoly is the existence of economies of scale, which give bigger producers a cost advantage over smaller ones -when these economies of scale are very strong, they lead to monopoly, but when they are not that strong they lead to competition among a small number of firms -ex: larger grocery stores typically have lower costs than smaller stores, but the advantages of large scale taper off once grocery stores are reasonably large which is why two or three stores survive in small towns -most of what we learn from the study of perfectly competitive markets: about costs, entry and exit, and efficiency remain valid despite the fact that many industries are not perfectly competitive -the analysis of oligopoly turns out to present some puzzles for which there is no easy solution Quick Review -in addition to perfect competition and monopoly, oligopoly and monopolistic competition are also important types of market structure, they are forms of imperfect competition -oligopoly is a common market structure, it arises from the same forces that lead to monopoly except in weaker form
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\Understanding Oligopoly A Duopoly Example -an oligopoly consisting of only two forms is a duopoly -each firm is known as a duopolist -sellers engage in collusion when they cooperate to raise each other’s profits -a cartel is an agreement by several producers that increases their combined profits by telling each one how much to produce -the world’s most famous cartel is the Organization of Petroleum Exporting Countries -an agreement among governments rather than frims -cartels among firms are illegal in the US and many other jurisdictions -a problem in this is that if two firms agree on a deal, they might have a problem in which
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Chapter 15 econ - Chapter 15 Oligopoly The Prevalence of...

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