tailieunhanh - Lecture Economics (9/e): Chapter 15 - David C. Colander

Chapter 15, Oligopoly and antitrust policy. After reading this chapter, you should be able to: Explain the distinguishing characteristics of oligopoly, distinguish two models of oligopoly, describe two empirical methods of measuring market structure, explain what antitrust policy is and give a brief history of it. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Explain the distinguishing characteristics of oligopoly Distinguish two models of oligopoly Explain what antitrust policy is and give a brief history of it Describe two empirical methods of measuring market structure 2 The Distinguishing Characteristics of Oligopoly An oligopoly is a market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account. Oligopolistic firms are mutually interdependent In any decision a firm makes, it must take into account the expected reaction of other firms Oligopolies can be collusive or noncollusive Firms may engage in strategic decision making where each firm takes explicit account of a rival’s expected response to a decision it is making Made up of a small number of firms in an industry 3 Models of Oligopoly Behavior There is no single model of oligopoly behavior The cartel model is when a combination of firms acts as if it were a single firm and a monopoly price is set An oligopoly model can take two extremes: The contestable market model is a model of oligopolies where barriers to entry and exit, not market structure, determine price and output decisions and a competitive price is set 4 The Cartel Model A cartel is a combination of firms that acts as if it were a single firm; a cartel is a shared monopoly Output quotas are assigned to individual member firms so that total output is consistent with joint profit maximization If oligopolies can limit the entry of other firms, they can restrict profit to a level that maximizes profits for the cartel Each member must hold its production below what would be in its own interest were it not to collude with the others 5 Implicit Price Collusion Explicit (formal) collusion is illegal in the . while implicit (informal) collusion is permitted Implicit price collusion exists when multiple firms make the same pricing decisions . | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Explain the distinguishing characteristics of oligopoly Distinguish two models of oligopoly Explain what antitrust policy is and give a brief history of it Describe two empirical methods of measuring market structure 2 The Distinguishing Characteristics of Oligopoly An oligopoly is a market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account. Oligopolistic firms are mutually interdependent In any decision a firm makes, it must take into account the expected reaction of other firms Oligopolies can be collusive or noncollusive Firms may engage in strategic decision making where each firm takes explicit account of a rival’s expected response to a decision it is making Made up of a small number of firms in an industry 3 Models of Oligopoly Behavior There is no single model of oligopoly behavior The cartel model is when a .