16,Oligopoly,BETWEEN MONOPOLY AND PERFECT COMPETITION,Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly.,BETWEEN MONOPOLY AND PERFECT COMPETITION,Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers.,BETWEEN MONOPOLY AND PERFECT COMPETITION,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.,Figure 1 The Four Types of Market Structure,Copyright 2004 South-Western,MARKETS WITH ONLY A FEW SELLERS,Because of the few sellers, the key feature of oligopoly is the tension between cooperation and self-interest.,Oligopoly A market structure in which a small number of firms are strategically interdependent.,MARKETS WITH ONLY A FEW SELLERS,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.,Table 1 The Demand Schedule for Water,Copyright 2004 South-Western,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?,Competition, Monopolies, and Cartels,The duopolists may agree on a monopoly outcome. Collusion An agreement among firms in a market about quantities to produce or prices to charge. Cartel A group of firms acting in unison.,Competition, Monopolies, and Cartels,Although oligopolists would like to form cartels and earn monopoly profits, often that is not possible. Antitrust laws prohibit explicit agreements among oligopolists as a matter of public policy.,The Equilibrium for an Oligopoly,A Nash equilibrium is a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the others have chosen.,The Equilibrium for an Oligopoly,When firms in an oligopoly individually choose production to maximize profit, they produce quantity of output greater than the level produced by monopoly and less than the level produced by competition.,The Equilibrium for an Oligopoly,The oligopoly price is less than the monopoly price but greater than the competitive price (which equals marginal cost).,Equilibrium for an Oligopoly,Summary Possible outcome if oligopoly firms pursue their own self-interests: Joint output is greater than the monopoly quantity but less than the competitive industry quantity. Market prices are lower than monopoly price but greater than competitive price. Total profits are less than the monopoly profit.,Table 1 The Demand Schedule for Water,Copyright 2004 South-Western,How the Size of an Oligopoly Affects the Market Outcome,How increasing the number of sellers affects the price and quantity: The output effect: Because price is above marginal cost, selling more at the going price raises profits. The price effect: Raising production will increase the amount sold, which will lower the price and the profit per unit on all units sold.,How the Size of an Oligopoly Affects the Market Outcome,As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a competitive market. The price approaches marginal cost, and the quantity produced approaches the socially efficient level.,GAME THEORY AND THE ECONOMICS OF COOPERATION,Game theory is the study of how people behave in strategic situations. Strategic decisions are those in which each person, in deciding what actions to take, must consider how others might respond to that action.,Oligopoly A market structure in which a small number of firms are strategically interdependent.,GAME THEORY AND THE ECONOMICS OF COOPERATION,Because the number of firms in an oligopolistic market is small, each firm must act strategically. Each firm knows that its profit depends not only on how much it produces but also on how much the other firms produce.,Game Theory An approach to modeling the strategic interaction of oligopolists in terms of moves and countermoves,博弈论是研究竞争的逻辑和规律的数学分支，冯诺依曼(Von Neumann)和摩根斯特恩(Oskar Morgenstern)合著的博弈论和经济行为Theory of Games and Economic Behavior一书是这门科学的奠基之作，不过他们所建立的是关于纯粹竞争的理论。,纳什(Nash, J.)的贡献是，他证明了在这一类的竞争中，在很广泛的条件下是有稳定解存在的，只要是别人的行为确定下来，竞争者就可以有最佳的策略。 他的这项理