Unit 11
Oligopoly Characteristics¶
- Few sellers, usually big firms
- Nearly identical products
- Interdependent: one firm's decisions affects another firm's profits
| Word | Meaning |
|---|---|
| Duopoly | an oligopoly with only two members |
| Collusion | an agreement among firms in a market about quantities to produce or prices to change |
| Cartel | a group of firms acting in unison |
| Nash equilibrium | a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the others have chosen always results in a suboptimal outcome |
| Game theory | the study of how people behave in strategic situations |
| Dominant strategy | the best strategy for a player to follow regardless of the strategies chosen by the other players |
| Output effect | If P > MC, selling more raises profits |
| Price effect | Raising production increases market quantity, which reduces market price and reduces profit on all units sold |
| Resale price maintenance | requiring a retailer to sell a good at a certain price determined by the wholesaler (prevents retailers from competing in price) |
| Predatory pricing | charging too low prices, hoping to drive out competitors |
| Tying | in order to purchase a monopoly good, you must purchase another "competitive" good at the same time |
Public Policy Toward Oligopolies¶
- Canada's Competition Act makes it illegal to collude
- Most collusion is tacit collusion
Last update:
November 22, 2021
Created: November 22, 2021
Created: November 22, 2021