Oligopoly is a market structure in which

•   A small number of firms compete, and
•   Natural or legal barriers prevent the entry of new firms.

 16.1   Describe and identify oligopoly and explain how it arises.

 16.2   Explore the range of possible price and quantity outcomes and describe the dilemma faced by firms in oligopoly.

 16.1   Describe and identify oligopoly and explain how it arises.

A.  Oligopoly comes from a Greek word meaning "competition among the few."  Oligopoly is a market type in which a small number of firms are interdependent; these firms compete behind a barrier to entry.

B.  The barriers to entry are of two types: (1) natural economies of scale and demand; (2) legal.

 16.2  Explore the range of possible price and quantity outcomes and describe the dilemma faced by firms in oligopoly.

A.  The smartest philosophy an oligopoly can follow is to pursue the strategy of acting as a joint monopoly.  Firms in oligopoly will receive the same profits as a monopoly if they can act in a unified way so as to restrict output and raise price to the monopoly levels.
B.  Each firm in oligopoly can make a larger profit by increasing its production, but this economic action damages the economic profit of other firms.  For this reason, oligopolies are unstable in the sense that any agreement to act as a joint monopoly becomes imperiled when any members follows its own inclination to increase its own well being by expanding output. 

Take the optional post-study bonus point quizzes on Oligopoly on Saturday following Module 11.

Take the optional pre-study bonus point quizzes on Regulation and Antitrust on Sunday preceding Module 12.

  

http://www.whitehouse.gov/fsbr/esbr.html