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OLIGOPOLY Chapter 16: BETWEEN MONOPOLY AND PERFECT COMPETITION I. Imperfect Competition - Imperfect competition refers to those market structures...

" as a group oligopolists would always earn the highest profit if they would?"
i don't understand it. I have read book for a long time but i still confused to find the answer and can not distinguish between monopoly, perfect competition and oligopoly
Teacher, can you help me?
thank you.
Chapter 16: OLIGOPOLY A. BETWEEN MONOPOLY AND PERFECT COMPETITION I. Imperfect Competition - Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. - Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers. THE FOUR TYPES OF MARKET STRUCTURE o Monopoly o Oligopoly o Monopolistic competition o Perfect competition II. Oligopoly - The first type of imperfect competitive market - Oligopoly is a market structure in which only a few sellers offer similar or identical products - Concentration ratio is economists measure a market’s domination by a small number of firms with a statistic, which is the percentage of total output in the market supplied by the four largest firms Example: The market for tennis ball III. Monopolistic Competition - The second type of imperfectly competitive market - Monopolistic competition is a market structure in which many firms sell products that are similar but not identical Examples: The markets for novels, CDs, movies B. MARKET WITH ONLY A FEW SELLERS Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest Characteristics of an Oligopoly Market Few sellers offering similar or identical products Interdependent firms Best off cooperating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost I. A Doupoly Example Duopoly is an oligopoly with only two members, is simplest type of oligopoly II. Competition Monopolies And Cartels
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Collusion is an agreement among firms in a market about quantities to produce or prices to charge Cartel is a group of firms acting in unison III. The Equilibrium For An Oligopoly Although oligopolists would like to form cartels and earn monopoly profits, often that is not possible. Antitrust laws prohibit explicit agreements among oligopolists as a matter of public policy. Nash equilibrium is a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen When firms in an oligopoly individually choose production to maximize profit, they produce quantity of output greater than the level produced by monopoly and less than the level produced by competition. The oligopoly price is less than the monopoly price but greater than the competitive price (which equals marginal cost). Possible outcome if oligopoly firms pursue their own self- interests: Joint output is greater than the monopoly quantity but less than the competitive industry quantity. Market prices are lower than monopoly price but greater than competitive price. Total profits are less than the monopoly profit. IV. How A Size Of An Oligopoly Affects The Market Outcome - How increasing the number of sellers affects the price and quantity: o The output effect: Because price is above marginal cost, selling more at the going price raises profits. o The price effect: Raising production will increase the amount sold, which will lower the price and the profit per unit on all units sold. - As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a competitive market. - The price approaches marginal cost, and the quantity produced approaches the socially efficient level. C. GAME THEORY AND THE ECONOMICS OF COOPERATION I. Game Theory Game theory is the study of how people behave in strategic situations.
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This question was asked on Jan 21, 2013.

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