tailieunhanh - Lecture Principles of economics - Chapter 16: Oligopoly

In this chapter we discuss the types of imperfect competition and examine a particular type called oligopoly. Our goal in this chapter is to see how this interdependence shapes the firms’ behavior and what problems it raises for public policy. | 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 • Tap water • Cable TV Monopoly (Chapter 15) • Novels • Movies Monopolistic Competition (Chapter 17) • Tennis balls • Crude oil Oligopoly (Chapter 16) Number of Firms? Perfect • Wheat • Milk Competition (Chapter 14) Type of Products? Identical products Differentiated products One firm Few firms Many firms MARKETS . | 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 • Tap water • Cable TV Monopoly (Chapter 15) • Novels • Movies Monopolistic Competition (Chapter 17) • Tennis balls • Crude oil Oligopoly (Chapter 16) Number of Firms? Perfect • Wheat • Milk Competition (Chapter 14) Type of Products? Identical products Differentiated products One firm Few firms Many firms MARKETS WITH ONLY A FEW 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 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 .