Oligopoly y Chapter 16
Oligopoly Chapter 16
Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. e Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are rice takers
Imperfect Competition • Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. • 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 Oligopoly 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
Types of Imperfectly Competitive Markets • Oligopoly – 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
The Four Types of Market Structure Number of firms? Many fi Irms One firm Few Type of Products? firms Differentiated Identical pI roalucts products Monopol Oligopoly Monopolistic Perfect Competition Competition ● Tap water Tennis balls Novels e Wheat e Cable Tv Crude oil ● Movies e Milk
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上 ew sellers Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest
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 Few sellers offering similar or identical products 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
Characteristics of an Oligopoly Market • Few sellers offering similar or identical products • Interdependent firms • 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
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 0 $120 $0 10 110 100 20 100 2.000 30 90 2,700 40 80 3200 50 70 3,500 60 60 3.600 70 50 3.500 80 40 3,200 90 30 2,700 100 0 2.000 110 10 1,100 120
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 The price of water in a perfectly competitive market would be driven to where the marginal cost is zero: P=MC=$O Q=120 gallons The price and quantity in a monopoly market would be where total profit is maximized P=$60 Q=60 gallons
A Duopoly Example: Price and Quantity Supplied • The price of water in a perfectly competitive market would be driven to where the marginal cost is zero: – P = MC = $0 – Q = 120 gallons • The price and quantity in a monopoly market would be where total profit is maximized: – P = $60 – Q = 60 gallons
A Duopoly Example Price and Quantity Supplied The socially efficient quantity of water is 120 gallons but a monopolist would produce only 60 gallons of water So what outcome then could be expected from duopolists?
A Duopoly Example: Price and Quantity Supplied • The socially efficient quantity of water is 120 gallons, but a monopolist would produce only 60 gallons of water. • So what outcome then could be expected from duopolists?