Chapter 11 Oligopoly
1 Chapter 11 Oligopoly
Define market structures ■ Number of sellers Product differentiation ■ Barrier to entry
2 Define market structures ◼ Number of sellers ◼ Product differentiation ◼ Barrier to entry
Types of Market Structure Are products differentiated? No Yes One Mo dongpo Not applicable How many producers e Oligopoly are there? Perfect Monopolistic Man competition competition 3
3 Types of Market Structure
Oligopoly Asmall number of firms mutually dependent on one another. and each has a substantial market share
4 Oligopoly: ◼A small number of firms mutually dependent on one another, and each has a substantial market share
Characteristics of oligopoly mutual dependence or interdependence each firm has a substantial market share, thus is big enough to affect market price a barriers to entry
5 Characteristics of Oligopoly ◼ mutual dependence (or interdependence) ◼ each firm has a substantial market share, thus is big enough to affect market price ◼ barriers to entry
B arriers to entry Entry limiting pricing Capacity barrier Economies of scope New product development
6 Barriers to entry: ◼ Entry limiting pricing ◼ Capacity barrier ◼ Economies of scope ◼ New product development
Barriers to entry: strategic deterrence Entry limiting pricing Capacity barrier Economies of scope New product development
7 Barriers to entry: strategic deterrence ◼ Entry limiting pricing ◼ Capacity barrier ◼ Economies of scope ◼ New product development
Entry limiting pricing if cost situation allows setP≤ min ac of the potential entrant
8 Entry limiting pricing if cost situation allows, set P< min LAC of the potential entrant
Capacity barrier Keep excess capacity as a threat for larger Q and lower p
9 Capacity barrier ◼Keep excess capacity as a threat for larger Q and lower P
Other barriers ■ Economies of scope (multi-product cost barrier new product development 10
10 Other barriers: ◼ Economies of scope ◼ (multi-product cost barrier) ◼ new product development
