• Many firms selling products that are similar but not identical.
Structure
Number of producers and degree of product differentiation
Part of economy where prevalent
• Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price taker.
16.1 Between Monopoly and Perfect competition
Africa
Angola
2007
Africa
Indonesia
1962
Asia
IR Iran*
1960
Middle East
Iraq*
1960
Middle East
Kuwait*
1960
Middle East
SP Libyan AJ
1962
Africa
Nigeria
1971
Africa
Qatar
1961
Franchise monopolies
(electricity,water); Microsoft windows;
Advertising; Considerable service
promotion
patent drugs
Country
Joined OPEC
Location
Algeria
1969
• Interdependent firms
• Best off cooperating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost
16.2 Markets With Only A Few Sellers
• Because an oligopolistic market has only a small group of sellers, the key feature of oligopoly is the tension between cooperation and self-interest. The group of oligopolists is best off cooperating and acting like a monopolist ---- producing a small quantity of output and charging a price above marginal cost. Yet because each oligopolist cares about only its own profit, there are powerful incentives at work that hinder a group of firms from maintaining the monopoly outcome.
(Mankiw, Principles of Economics(2004), third edition, p347)
16.2 Markets With Only A Few Sellers
• Characteristics of an Oligopoly Market
• Few sellers offering similar or identical products
Cars; Wordprocessing software; household appliances
None some
Market exchange or
auction
Advertising and quality
rivalry; administered
prices
Monopoly
Single producer; product without close substitutes
Firm’s degree
of contrhods of marketing
Perfect competition Monopolistic competition
oligopoly
Many producers; Identical products
Many producers; Many real or perceived differences in products Few producers; little or no difference in product
Middle East
Saudi Arabia*
1960
Middle East
United Arab Emirates
1967
Middle East
Venezuela*
1960
South America
*founder Members (/library/FAQs/aboutOPEC/q3.htm)
Chapter 16 Oligopoly
Between Monopoly and Perfect competition
• Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly.
• Type of Imperfectly Competitive Markets
• Oligopoly
• Only a few sellers, each offering a similar or identical product to the others.
• Monopolistic Competition
Few producers; Products are differentiated
Financial markets;
agricultural markets
Retail trade (pizzas, beer, gas-station); personal computers
Steel; Chemicals; aircraft