Chap_16 Oligopoly.ppt

Oligopoly
Chapter 16
petition
petition refers to those market structures that fall between petition and pure monopoly.
petition
petition includes industries in which firms petitors but do not face so petition that they are price takers.
Types of petitive Markets
Oligopoly
Only a few sellers, each offering a similar or identical product to the others.
petition
Many firms selling products that are similar but not identical.
The Four Types of Market Structure
Monopoly
Oligopoly
petition
petition
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.
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: Demand Schedule for Water
A Duopoly Example: Price andQuantity Supplied
The price of water in a petitive 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