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A Duopoly Example: Demand Schedule for Water
Quantity
Price
0
$120
10
110
20
100
30
90
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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
Competition, Monopolies, and Cartels
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.
Oligopoly
Chapter 16
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ቤተ መጻሕፍቲ ባይዱ
Competition, Monopolies, and Cartels
The duopolists may agree on a monopoly outcome.
40
80
50
70
60
60
70
50
80
40
90
30
100
20
110
10
120
0
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• Wheat • Milk
Markets With Only a Few Sellers
Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest.
Monopolistic Competition
Many firms selling products that are similar but not identical.
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A Duopoly Example: Price and Quantity Supplied
The socially efficient quantity of water is 120 gallons, but a monopolist would produce only 60 gallons of water. So what outcome then could be expected from duopolists?
100 110 120
Price $120 110 100
90 80 70 60 50 40 30 20 10 0
Total Revenue $0 1,100 2,000 2,700 3,200 3,500 3,600 3,500 3,200 2,700 2,000 1,100 0
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The Four Types of Market Structure
Number of Firms?
One firm
Few firms
Many firms
Type of Products?
Differentiated products
Identical products
Monopoly
Oligopoly
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Types of Imperfectly Competitive Markets
Oligopoly
Only a few sellers, each offering a similar or identical product to the others.
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The Equilibrium for an Oligopoly
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.
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.
Imperfect Competition
Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers.
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A Duopoly Example: Demand
Schedule for Water
Quantity 0 10 20 30 40 50 60 70 80 90
Collusion
The two firms may agree on the quantity to produce and the price to
charge.
Cartel
The two firms may join together and act in unison.
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Summary of Equilibrium for an Oligopoly
Possible outcome if oligopoly firms pursue their own self-interests:
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The Equilibrium for an Oligopoly
A Nash equilibrium is a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the others have chosen.
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A Duopoly Example