Oligopoly Chapter 16 Copyright C 2001 by Harcourt, Inc All rights reserved. Requests for permission to make copies of any part of t work should be mailed to Permissions Department, Harcourt College Publishers 277. Sea Harbor Drive. Orlando Florida 32887-6777 ◎2001 by Harco
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Oligopoly Chapter 16 Copyright © 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department, Harcourt College Publishers, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777
Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly
Imperfect Competition Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers. H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Imperfect Competition Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers
Types of Imperfectly Competitive Markets Olig topol Only a few sellers, each offering a similar or identical product to the others Monopolistic Competition Many firms selling products that are similar but not identical H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Types of Imperfectly Competitive Markets uOligopoly uOnly a few sellers, each offering a similar or identical product to the others. uMonopolistic Competition uMany firms selling products that are similar but not identical
The Four Types of Market Structure Number of firms? Many firms One firm/Few Type of Products? firms Differentiated Identical products products Monopoly oligopoly Monopolistic Perfect Competition Competitio Tap water Tennis balls Novels Wheat Cable v Crude oil Movies o Milk H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. The Four Types of Market Structure Monopoly Oligopoly Monopolistic Competition Perfect Competition • Tap water • Cable TV • Tennis balls • Crude oil • Novels • Movies • Wheat • Milk Number of Firms? Type of Products? Many firms One firm Few firms Differentiated products Identical products
Markets With Only a Few Sellers Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Markets With Only a Few Sellers Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest
Characteristics of an Oligopoly Market o Few sellers offering similar or identical products o Interdependent firms o Best off cooperating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Characteristics of an Oligopoly Market u Few sellers offering similar or identical products u Interdependent firms u Best off cooperating and acting like a monopolist by producing a small quantity of output and charging a price above marginal cost
A Duopoly Example a duopoly is an oligopoly with only two members. It is the simplest type of oligopoly. H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. A Duopoly Example A duopoly is an oligopoly with only two members. It is the simplest type of oligopoly
A Duopoly Example: Demand Schedule for Water Quantity Price Total Revenue $120 $0 10 110 1.100 100 2000 30 90 2.700 40 80 3,200 3.500 60 60 3.600 70 50 3.500 80 3,200 90 30 2.700 100 2.000 10 10 1,100 120 Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. A Duopoly Example: Demand Schedule for Water Quantity Price Total Revenue 0 $120 $ 0 10 110 1,100 20 100 2,000 30 90 2,700 40 80 3,200 50 70 3,500 60 60 3,600 70 50 3,500 80 40 3,200 90 30 2,700 100 20 2,000 110 10 1,100 120 0 0
A Duopoly Example: Price and Quantity Supplied o The price of water in a perfectly competitive market would be driven to where the marginal cost is zero. P=MC = SO Q=120 gallons oThe price and quantity in a monopoly market would be where total profit is maximized P=$60 Q=60 gallons H arc Inc items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. A Duopoly Example: Price and Quantity Supplied uThe price of water in a perfectly competitive market would be driven to where the marginal cost is zero: P = MC = $0 Q = 120 gallons uThe price and quantity in a monopoly market would be where total profit is maximized: P = $60 Q = 60 gallons