Ch17 oligopoly
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Transcript of Ch17 oligopoly
1. Consider the 3 market structures we have learned so far
2. What do they seem to depend on?
Mankiw Ch17
Perfect Competition
Monopolistic
CompetitionOligopoly Monopoly
Oligopoly Features: Few large firms Very similar products Interdependent Firms compete on products, not price Very difficult to start new firm Very difficult to close down firm Not fully informed consumers
Measuring Market Concentration Concentration ratio: the percentage of
the market’s total output supplied by its four largest firms.
The higher the concentration ratio, the less competition.
Concentration Ratios in Selected U.S. Industries Industry Concentration ratio
Video game consoles 100%
Tennis balls 100%
Credit cards 99%
Batteries 94%
Soft drinks 93%
Web search engines 92%
Breakfast cereal 92%
Cigarettes 89%
Greeting cards 88%
Beer 85%
Cell phone service 82%
Autos 79%
OLIGOPOLY6
The Size of the Oligopoly
As the number of firms in the market increases, the price effect becomes smaller the oligopoly looks more and more like a
competitive market P approaches MC the market quantity approaches the socially
efficient quantity
Another benefit of international trade: Trade increases the number of firms
competing, increases Q, brings P closer to marginal cost
Automakers as example
Another benefit of international trade: Trade increases the number of firms
competing, increases Q, brings P closer to marginal cost
Automakers as example
Special type of Oligopoly Duopoly Oligopoly with only 2 firms Comic books Coke vs. Pepsi
King of the Hill
Graph before collusion Propane market structure?
Graph after collusion show profits, don’t move ATC
If firms discuss and agreed on new prices…
This is called collusion. And you formed a cartel.
Collusion = setting of prices by rival firmsCartel = groups of rival firms that try to fix
prices to increase profits
**Drug cartels – don’t compete on priceIn the United States, it is illegal
Mankiw Pages 369
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