ECON 202: Principles of Microeconomics. Chapter 13 Oligopoly

Size: px
Start display at page:

Download "ECON 202: Principles of Microeconomics. Chapter 13 Oligopoly"

Transcription

1 ECON 202: Principles of Microeconomics Chapter 13 Oligopoly

2 Oligopoly 1. Oligopoly and Barriers to Entry. 2. Using Game Theory to Analyze Oligopoly. 3. Sequential Games and Business Strategy. 4. The Five Competitive Forces Model. Oligopoly 2

3 Introduction Oligopoly is market structure where: Few competitors. Identical or differentiated products. Restrictions to entry. In case of oligopolistic markets, revenues of the firms depend on actions of other competitors. If a firm cut its price, number of units sold depends on how other firms react. If other firms don t do anything, sell more. If other firms also cut prices, sales will not increase much or can even decrease. Marginal revenue depends on actions of other firms. Approach to analyze oligopolies: game theory. Oligopoly 3

4 1. Oligopoly and Barriers to Entry Oligopolistic markets have few firms How many firms is few? US Bureau of Census publishes 4-firm concentration ratios per industry. More than 40% indicates oligopolistic market. Critics Consider only sales by national firms In some industries, competition is mainly local. (restaurants) Some firms compete in different industries. (Wal Mart in discount department stores, supermarkets and retail toy stores) Herfindahl-Hirschman Index (HHI) Sum of squared shares: = 2,600 HHI > 1,800 : oligopolistic markets. Oligopoly 4

5 1. Oligopoly and Barriers to Entry INDUSTRY RETAIL TRADE FOUR-FIRM CONCENTRATION RATIO INDUSTRY MANUFACTURING FOUR-FIRM CONCENTRATION RATIO Discount Department Stores 95% Cigarettes 95% Warehouse Clubs and Supercenters 92% Beer 91% Hobby, Toy, and Game Stores 72% Breakfast Cereal 82% Athletic Footwear Stores 71% Aircraft 81% College Bookstores 70% Automobiles 76% Radio, Television, and Other Electronic Stores 69% Dog and Cat Food 76% Pharmacies and Drugstores 53% Dog and Cat Food 64% Oligopoly 5

6 1. Oligopoly and Barriers to Entry Barriers to entry Economies of scale Oligopoly 6

7 1. Oligopoly and Barriers to Entry Ownership of a Key Input Aluminum Company of America (Alcoa) access to high-quality bauxite. De Beers Company of South Africa access to diamonds. Government-imposed barriers Occupational licensing (doctors and dentists) Restrictions to international trade (tariffs and quotas) Since entry is restricted, firms can sustain economic profits over a long period. Oligopoly 7

8 2. Using Game Theory to Analyze Oligopoly Game theory: The study of how people make decisions in situations in which attaining their goals depends on their interactions with others. Games have three characteristics: Rules. Strategies. Payoffs. Oligopoly 8

9 2. Using Game Theory to Analyze Oligopoly Duopoly: price competition between two firms. Firms can collude, but is against the law. (Sherman Act) Oligopoly 9

10 2. Using Game Theory to Analyze Oligopoly For each firm, to charge $400 is a dominant strategy. The best strategy for a player, regardless of what the other players decide. ($400, $400) is a Nash equilibrium. A situation where each player is choosing its best strategy, given the others players strategies. A situation where no player has an incentive to change of strategy. Equilibrium is not best possible result for the firms, but it results because each firm pursues its own interest. Noncooperative equilibrium. If firms decide to cooperate and play ($600, $600), then result increases their mutual payoff. Cooperative equilibrium. Oligopoly 10

11 2. Using Game Theory to Analyze Oligopoly Types of games where individual maximization of payoff leaves everyone worse off are called prisoner s dilemma. Nash Equilibrium is (defect, defect). Challenge to Adam Smith s idea of self-interest. Oligopoly 11

12 2. Using Game Theory to Analyze Oligopoly In most business situations games are played repeatedly. Firms can collude implicitly to reach the cooperative equilibrium. Example: lowest price guarantee Firms send a signal to competitors that if they charge lower price, its strategy will be the same. Firms have the incentive to keep the high price. Oligopoly 12

13 2. Using Game Theory to Analyze Oligopoly Oligopoly 13

14 2. Using Game Theory to Analyze Oligopoly When firms can collude: cartels (OPEC) However, firms can have incentives to stop cooperation, which makes difficult to sustain agreements. Oligopoly 14

15 3. Sequential Games and Business Strategy Oligopolistic firms can deter the entry of new firms. Best strategy for WalMart is to build the large store, deterring entry from Target. Oligopoly 15

16 3. Sequential Games and Business Strategy Best strategy for firm is to build the small store and let Target entry the market. Oligopoly 16

17 3. Sequential Games and Business Strategy Bargaining If TruImage says that will not accept a deal at $20: noncredible threat. Oligopoly 17

18 4. The Five Competitive Forces Model Forces that determine the level of competition in an industry. Oligopoly 18

19 4. The Five Competitive Forces Model Competition from existing firms. Educational testing service: SAT and ACT vs. GRE. Threat from potential entrants. Railways. Competition from substitute goods or services. Train vs. flight Bargaining power of buyers. Automobile makers and tire suppliers. Bargaining power of suppliers. Technicolor and color movies. Oligopoly 19

20 ECON 202: Principles of Microeconomics Chapter 13 Oligopoly

Chapter 14. Oligopoly

Chapter 14. Oligopoly Chapter 14. Oligopoly Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 202 504 Principles of Microeconomics Oligopoly Market Oligopoly: A market structure in which a small number

More information

L10. Chapter 13 Oligopoly: Firms in Less Competitive Markets

L10. Chapter 13 Oligopoly: Firms in Less Competitive Markets L10 Chapter 13 Oligopoly: Firms in Less Competitive Markets The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products

More information

Oligopoly: Firms in Less Competitive Markets

Oligopoly: Firms in Less Competitive Markets Chapter 13 Oligopoly: Firms in Less Competitive Markets Prepared by: Fernando & Yvonn Quijano 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O Brien, 2e. Competing with

More information

Oligopoly: Firms in Less Competitive Markets

Oligopoly: Firms in Less Competitive Markets Chapter 13 Oligopoly: Firms in Less Competitive Markets Chapter Summary In Chapters 11 and 12, you studied perfectly competitive and monopolistically competitive markets. You learned that firms maximize

More information

Economics Instructor Miller Oligopoly Practice Problems

Economics Instructor Miller Oligopoly Practice Problems Economics Instructor Miller Oligopoly Practice Problems 1. An oligopolistic industry is characterized by all of the following except A) existence of entry barriers. B) the possibility of reaping long run

More information

ECON101 STUDY GUIDE 7 CHAPTER 14

ECON101 STUDY GUIDE 7 CHAPTER 14 ECON101 STUDY GUIDE 7 CHAPTER 14 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) An oligopoly firm is similar to a monopolistically competitive

More information

Models of Imperfect Competition

Models of Imperfect Competition Models of Imperfect Competition Monopolistic Competition Oligopoly Models of Imperfect Competition So far, we have discussed two forms of market competition that are difficult to observe in practice Perfect

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Competition and Product ifferentiation Outline for Lectures 19 and 20. Read Chapter 12 and the assigned class reading. Announcements What is Monopolistic Competition? Why oligopolists and

More information

Unit 8. Firm behaviour and market structure: monopolistic competition and oligopoly

Unit 8. Firm behaviour and market structure: monopolistic competition and oligopoly Unit 8. Firm behaviour and market structure: monopolistic competition and oligopoly Learning objectives: to understand the interdependency of firms and their tendency to collude or to form a cartel; to

More information

Oligopoly. Unit 4: Imperfect Competition. Unit 4: Imperfect Competition 4-4. Oligopolies FOUR MARKET MODELS

Oligopoly. Unit 4: Imperfect Competition. Unit 4: Imperfect Competition 4-4. Oligopolies FOUR MARKET MODELS 1 Unit 4: Imperfect Competition FOUR MARKET MODELS Perfect Competition Monopolistic Competition Pure Characteristics of Oligopolies: A Few Large Producers (Less than 10) Identical or Differentiated Products

More information

LECTURE #15: MICROECONOMICS CHAPTER 17

LECTURE #15: MICROECONOMICS CHAPTER 17 LECTURE #15: MICROECONOMICS CHAPTER 17 I. IMPORTANT DEFINITIONS A. Oligopoly: a market structure with a few sellers offering similar or identical products. B. Game Theory: the study of how people behave

More information

Oligopoly. Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly. Interdependence.

Oligopoly. Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly. Interdependence. Oligopoly Chapter 16-2 Models of Oligopoly Behavior No single general model of oligopoly behavior exists. Oligopoly An oligopoly is a market structure characterized by: Few firms Either standardized or

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chap 13 Monopolistic Competition and Oligopoly These questions may include topics that were not covered in class and may not be on the exam. MULTIPLE CHOICE. Choose the one alternative that best completes

More information

Chapter 16 Oligopoly. 16.1 What Is Oligopoly? 1) Describe the characteristics of an oligopoly.

Chapter 16 Oligopoly. 16.1 What Is Oligopoly? 1) Describe the characteristics of an oligopoly. Chapter 16 Oligopoly 16.1 What Is Oligopoly? 1) Describe the characteristics of an oligopoly. Answer: There are a small number of firms that act interdependently. They are tempted to form a cartel and

More information

chapter: Oligopoly Krugman/Wells Economics 2009 Worth Publishers 1 of 35

chapter: Oligopoly Krugman/Wells Economics 2009 Worth Publishers 1 of 35 chapter: 15 >> Oligopoly Krugman/Wells Economics 2009 Worth Publishers 1 of 35 WHAT YOU WILL LEARN IN THIS CHAPTER The meaning of oligopoly, and why it occurs Why oligopolists have an incentive to act

More information

Imperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers

Imperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers Imperfect Competition Oligopoly Chapter 16 Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Copyright 2001 by Harcourt, Inc. All rights reserved.

More information

Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly

Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly Ecn 221 - Unit 10 Monopolistic Competition & Oligopoly An industry characterized by monopolistic competition is similar to the case of perfect competition in that there are many firms, and entry into the

More information

Extreme cases. In between cases

Extreme cases. In between cases CHAPTER 16 OLIGOPOLY FOUR TYPES OF MARKET STRUCTURE Extreme cases PERFECTLY COMPETITION Many firms No barriers to entry Identical products MONOPOLY One firm Huge barriers to entry Unique product In between

More information

MODULE 64: INTRODUCTION TO OLIGOPOLY Schmidty School of Economics. Wednesday, December 4, 2013 9:20:15 PM Central Standard Time

MODULE 64: INTRODUCTION TO OLIGOPOLY Schmidty School of Economics. Wednesday, December 4, 2013 9:20:15 PM Central Standard Time MODULE 64: INTRODUCTION TO OLIGOPOLY Schmidty School of Economics Learning Targets I Can Understand why oligopolists have an incentive to act in ways that reduce their combined profit. Explain why oligopolies

More information

Market Structure: Duopoly and Oligopoly

Market Structure: Duopoly and Oligopoly WSG10 7/7/03 4:24 PM Page 145 10 Market Structure: Duopoly and Oligopoly OVERVIEW An oligopoly is an industry comprising a few firms. A duopoly, which is a special case of oligopoly, is an industry consisting

More information

a. Retail market for water and sewerage services Answer: Monopolistic competition, many firms each selling differentiated products.

a. Retail market for water and sewerage services Answer: Monopolistic competition, many firms each selling differentiated products. Chapter 16 1. In which market structure would you place each of the following products: monopoly, oligopoly, monopolistic competition, or perfect competition? Why? a. Retail market for water and sewerage

More information

Oligopoly and Game Theory

Oligopoly and Game Theory Chapter 15 MODERN PRINCIPLES OF ECONOMICS Third Edition Oligopoly and Game Theory Outline Cartels The Prisoner s Dilemma Oligopolies When Are Cartels and Oligopolies Most Successful? Government Policy

More information

CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition

CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates

More information

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output. Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

More information

Chapter 16 Monopolistic Competition and Oligopoly

Chapter 16 Monopolistic Competition and Oligopoly Chapter 16 Monopolistic Competition and Oligopoly Market Structure Market structure refers to the physical characteristics of the market within which firms interact It is determined by the number of firms

More information

Econ 101: Principles of Microeconomics

Econ 101: Principles of Microeconomics Econ 101: Principles of Microeconomics Chapter 15 - Oligopoly Fall 2010 Herriges (ISU) Ch. 15 Oligopoly Fall 2010 1 / 25 Outline 1 Understanding Oligopolies 2 Game Theory Overcoming the Prisoner s Dilemma

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MBA 640, Survey of Microeconomics Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The "law of demand" states that, other

More information

T28 OLIGOPOLY 3/1/15

T28 OLIGOPOLY 3/1/15 T28 OLIGOPOLY 3/1/15 1. Oligopoly is a market structure in which there are a small number of firms that engage in strategic interactions. If there are only two firms then we refer to the situation as a

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The four-firm concentration ratio equals the percentage of the value of accounted for by the four

More information

Common in European countries government runs telephone, water, electric companies.

Common in European countries government runs telephone, water, electric companies. Public ownership Common in European countries government runs telephone, water, electric companies. US: Postal service. Because delivery of mail seems to be natural monopoly. Private ownership incentive

More information

Table: Characteristics of Market Structures

Table: Characteristics of Market Structures Oligopolies Part I It's called an oligopoly. It's not a regular market. It's a market in which they control the prices and they've been doing it for years. Richard Miller Market Structure We classify firms

More information

Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly] ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

More information

4. Market Structures. Learning Objectives 4-63. Market Structures

4. Market Structures. Learning Objectives 4-63. Market Structures 1. Supply and Demand: Introduction 3 2. Supply and Demand: Consumer Demand 33 3. Supply and Demand: Company Analysis 43 4. Market Structures 63 5. Key Formulas 81 2014 Allen Resources, Inc. All rights

More information

Oligopoly and Strategic Pricing

Oligopoly and Strategic Pricing R.E.Marks 1998 Oligopoly 1 R.E.Marks 1998 Oligopoly Oligopoly and Strategic Pricing In this section we consider how firms compete when there are few sellers an oligopolistic market (from the Greek). Small

More information

When other firms see these potential profits they will enter the industry, causing a downward shift in the demand for a given firm s product.

When other firms see these potential profits they will enter the industry, causing a downward shift in the demand for a given firm s product. Characteristics of Monopolistic Competition large number of firms differentiated products (ie. substitutes) freedom of entry and exit Examples Upholstered furniture: firms; HHI* = 395 Jewelry and Silverware:

More information

OLIGOPOLY. Nature of Oligopoly. What Causes Oligopoly?

OLIGOPOLY. Nature of Oligopoly. What Causes Oligopoly? CH 11: OLIGOPOLY 1 OLIGOPOLY When a few big firms dominate the market, the situation is called oligopoly. Any action of one firm will affect the performance of other firms. If one of the firms reduces

More information

Lecture 12: Imperfect Competition

Lecture 12: Imperfect Competition Lecture 12: Imperfect Competition Readings: Chapters 14,15 Q: How relevant are the Perfect Competition and Monopoly models to the real world? A: Very few real world business is carried out in industries

More information

C H A P T E R 12. Monopolistic Competition and Oligopoly CHAPTER OUTLINE

C H A P T E R 12. Monopolistic Competition and Oligopoly CHAPTER OUTLINE C H A P T E R 12 Monopolistic Competition and Oligopoly CHAPTER OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition versus Collusion: The Prisoners Dilemma 12.5

More information

13 MONOPOLISTIC COMPETITION AND OLIGOPOLY. Chapter. Key Concepts

13 MONOPOLISTIC COMPETITION AND OLIGOPOLY. Chapter. Key Concepts Chapter 13 MONOPOLISTIC COMPETITION AND OLIGOPOLY Key Concepts Monopolistic Competition The market structure of most industries lies between the extremes of perfect competition and monopoly. Monopolistic

More information

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

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 In this chapter, look for the answers to these questions: What market structures lie between perfect competition and monopoly, and what are their characteristics? What outcomes are possible under oligopoly?

More information

12 Monopolistic Competition and Oligopoly

12 Monopolistic Competition and Oligopoly 12 Monopolistic Competition and Oligopoly Read Pindyck and Rubinfeld (2012), Chapter 12 09/04/2015 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition

More information

Market structures. 18. Oligopoly Gene Chang Univ. of Toledo. Examples. Oligopoly Market. Behavior of Oligopoly. Behavior of Oligopoly

Market structures. 18. Oligopoly Gene Chang Univ. of Toledo. Examples. Oligopoly Market. Behavior of Oligopoly. Behavior of Oligopoly Market structures 18. Oligopoly Gene Chang Univ. of Toledo We distinguish the market structure by examining the following characteristics in the industry: Number of firms in the industry Nature of the

More information

Figure: Computing Monopoly Profit

Figure: Computing Monopoly Profit Name: Date: 1. Most electric, gas, and water companies are examples of: A) unregulated monopolies. B) natural monopolies. C) restricted-input monopolies. D) sunk-cost monopolies. Use the following to answer

More information

Market Structure: Oligopoly (Imperfect Competition)

Market Structure: Oligopoly (Imperfect Competition) Market Structure: Oligopoly (Imperfect Competition) I. Characteristics of Imperfectly Competitive Industries A. Monopolistic Competition large number of potential buyers and sellers differentiated product

More information

Oligopoly and Strategic Behavior

Oligopoly and Strategic Behavior Oligopoly and Strategic Behavior MULTIPLE-CHOICE QUESTIONS Like a pure monopoly, an oligopoly is characterized by: a. free entry and exit in the long run. b. free entry and exit in the short run. c. significant

More information

Market Structure. Market Structure and Behaviour. Perfect competition. PC firm output

Market Structure. Market Structure and Behaviour. Perfect competition. PC firm output Market Structure Market Structure and Behaviour See chapters 10-12 in Mansfield et al Market: firms and individuals buy and sell Important social and legal preconditions Different structures depending

More information

Oligopoly. Oligopoly is a market structure in which the number of sellers is small.

Oligopoly. Oligopoly is a market structure in which the number of sellers is small. Oligopoly Oligopoly is a market structure in which the number of sellers is small. Oligopoly requires strategic thinking, unlike perfect competition, monopoly, and monopolistic competition. Under perfect

More information

Oligopoly. Oligopoly. Offer similar or identical products Interdependent. How people behave in strategic situations

Oligopoly. Oligopoly. Offer similar or identical products Interdependent. How people behave in strategic situations Oligopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Oligopoly Only a few sellers Oligopoly Offer similar or identical products Interdependent Game theory How people

More information

A seller who can only sell his or her goods at the equilibrium price.

A seller who can only sell his or her goods at the equilibrium price. Chapter 8, Section 1 A Perfectly Competitive Market What are the four characteristics of a perfectly competitive market? 1. Many buyers and sellers 2. All firms sell identical goods 3. Buyers and sellers

More information

5. Suppose demand is perfectly elastic, and the supply of the good in question

5. Suppose demand is perfectly elastic, and the supply of the good in question ECON 1620 Basic Economics Principles 2010 2011 2 nd Semester Mid term test (1) : 40 multiple choice questions Time allowed : 60 minutes 1. When demand is inelastic the price elasticity of demand is (A)

More information

Chapter 7 Monopoly, Oligopoly and Strategy

Chapter 7 Monopoly, Oligopoly and Strategy Chapter 7 Monopoly, Oligopoly and Strategy After reading Chapter 7, MONOPOLY, OLIGOPOLY AND STRATEGY, you should be able to: Define the characteristics of Monopoly and Oligopoly, and explain why the are

More information

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit 1) Accountants include costs as part of a firm's costs, while economists include costs. A) explicit; no explicit B) implicit;

More information

Chapter 7: Market Structures Section 1

Chapter 7: Market Structures Section 1 Chapter 7: Market Structures Section 1 Key Terms perfect competition: a market structure in which a large number of firms all produce the same product and no single seller controls supply or prices commodity:

More information

Econ 111 (04) 2nd Midterm A

Econ 111 (04) 2nd Midterm A Econ 111 (04) 2nd Midterm A MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which one of the following does not occur in perfect competition? A)

More information

chapter: Solution Oligopoly 1. The accompanying table presents market share data for the U.S. breakfast cereal market

chapter: Solution Oligopoly 1. The accompanying table presents market share data for the U.S. breakfast cereal market S209-S220_Krugman2e_PS_Ch15.qxp 9/16/08 9:23 PM Page S-209 Oligopoly chapter: 15 1. The accompanying table presents market share data for the U.S. breakfast cereal market in 2006. Company a. Use the data

More information

Monopolistic Competition, Oligopoly, and maybe some Game Theory

Monopolistic Competition, Oligopoly, and maybe some Game Theory Monopolistic Competition, Oligopoly, and maybe some Game Theory Now that we have considered the extremes in market structure in the form of perfect competition and monopoly, we turn to market structures

More information

Quick Review. Chapter 15: Figure 1 The Four Types of Market Structure

Quick Review. Chapter 15: Figure 1 The Four Types of Market Structure Chapter 16: Oligopoly Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly and do not face so much competition that they are price takers. Types

More information

Week 7 - Game Theory and Industrial Organisation

Week 7 - Game Theory and Industrial Organisation Week 7 - Game Theory and Industrial Organisation The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry structures with a small number of firms. There are a number

More information

The Big Picture. Perfect Competition CHAPTER 14 SUMMARY CHAPTER 15 SUMMARY. Firms in Competitive Markets

The Big Picture. Perfect Competition CHAPTER 14 SUMMARY CHAPTER 15 SUMMARY. Firms in Competitive Markets The Big Picture Chapter 13: The cost of production Chapter 14-17:Look at firm s revenue But revenue depends on market structure 1. Competitive market (chapter 14) 2. Monopoly (chapter 15) 3. Oligopoly

More information

CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.)

CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.) CHAPTER 18 MARKETS WITH MARKET POWER Principles of Economics in Context (Goodwin et al.) Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates the

More information

Chapter 12 Monopolistic Competition and Oligopoly

Chapter 12 Monopolistic Competition and Oligopoly Chapter Monopolistic Competition and Oligopoly Review Questions. What are the characteristics of a monopolistically competitive market? What happens to the equilibrium price and quantity in such a market

More information

1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B) plant. C) firm. D) multinational.

1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B) plant. C) firm. D) multinational. Miami Dade College ECO 2023 Principles of Microeconomics Summer B 2014 Practice Test #3 1. An economic institution that combines factors of production into outputs for consumers is a(n): A) industry. B)

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Four - Sample Questions Chapters 12-14 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) What is the difference between perfect competition

More information

CHAPTER 13 GAME THEORY AND COMPETITIVE STRATEGY

CHAPTER 13 GAME THEORY AND COMPETITIVE STRATEGY CHAPTER 13 GAME THEORY AND COMPETITIVE STRATEGY EXERCISES 3. Two computer firms, A and B, are planning to market network systems for office information management. Each firm can develop either a fast,

More information

Exam No. 3 Date: 7 or 9 May Instructor: Brian B. Young

Exam No. 3 Date: 7 or 9 May Instructor: Brian B. Young Economics 212 Microeconomic Principles Exam No. 3 Date: 7 or 9 May 2012 Name The value of this exam is 100 points Instructor: Brian B. Young Please show your work where appropriate! Multiple Choice 2 points

More information

Games and Strategic Behavior. Chapter 9. Learning Objectives

Games and Strategic Behavior. Chapter 9. Learning Objectives Games and Strategic Behavior Chapter 9 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1. List the three basic elements of a game. Recognize

More information

Bertrand with complements

Bertrand with complements Microeconomics, 2 nd Edition David Besanko and Ron Braeutigam Chapter 13: Market Structure and Competition Prepared by Katharine Rockett Dieter Balkenborg Todd Kaplan Miguel Fonseca Bertrand with complements

More information

Microeconomic Analysis

Microeconomic Analysis Microeconomic Analysis Oligopoly and Monopolistic Competition Ch. 13 Perloff Topics Market Structures. Cartels. Noncooperative Oligopoly. Cournot Model. Stackelberg Model. Comparison of Collusive, Cournot,

More information

Learning Objectives. Chapter 7. Characteristics of Monopolistic Competition. Monopolistic Competition. In Between the Extremes: Imperfect Competition

Learning Objectives. Chapter 7. Characteristics of Monopolistic Competition. Monopolistic Competition. In Between the Extremes: Imperfect Competition Chapter 7 In Between the Extremes: Imperfect Competition Learning Objectives List the five conditions that must be met for the existence of monopolistic competition. Describe the methods that firms can

More information

Building brand awareness in. Jingyu Lee Rutger Ploeger

Building brand awareness in. Jingyu Lee Rutger Ploeger Building brand awareness in dynamic oligopoly markets Jingyu Lee Rutger Ploeger Outline Brand awareness Game theory Oligopoly market Paper Conclusion Questions Brand awareness Brand awareness Brand recognition

More information

MONOPOLISTIC COMPETITION AND OLIGOPOLY

MONOPOLISTIC COMPETITION AND OLIGOPOLY MONOPOLISTIC COMPETITION AND OLIGOPOLY I. MONOPOLISTIC COMPETITION a. CHARACTERISTICS i. RELATIVELY LARGE NUMBER OF SELLERS 1. Each firm has a relatively small percentage of market share 2. No collusion

More information

Chapter 9 Market Structure: Oligopoly

Chapter 9 Market Structure: Oligopoly Economics for Managers by Paul Farnham Chapter 9 Market Structure: Oligopoly 9.1 Oligopoly A market structure characterized by competition among a small number of large firms that have market power, but

More information

Variable Cost. Marginal Cost. Average Variable Cost 0 $50 $50 $0 -- -- -- -- 1 $150 A B C D E F 2 G H I $120 J K L 3 M N O P Q $120 R

Variable Cost. Marginal Cost. Average Variable Cost 0 $50 $50 $0 -- -- -- -- 1 $150 A B C D E F 2 G H I $120 J K L 3 M N O P Q $120 R Class: Date: ID: A Principles Fall 2013 Midterm 3 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Trevor s Tire Company produced and sold 500 tires. The

More information

THIRD EDITION. ECONOMICS and. MICROECONOMICS Paul Krugman Robin Wells. Chapter 14. Oligopoly

THIRD EDITION. ECONOMICS and. MICROECONOMICS Paul Krugman Robin Wells. Chapter 14. Oligopoly THIRD EDITION ECONOMICS and MICROECONOMICS Paul Krugman Robin Wells Chapter 14 Oligopoly WHAT YOU WILL LEARN IN THIS CHAPTER The meaning of oligopoly, and why it occurs Why oligopolists have an incentive

More information

Lecture 11: Oligopoly and Strategic Behavior

Lecture 11: Oligopoly and Strategic Behavior Lecture 11: Oligopoly and Strategic Behavior Few Firms in the Market: Each aware of others actions Each firm in the industry has market power Entry is Feasible, although incumbent(s) may try to deter it.

More information

Chapter 13: Strategic Decision Making in Oligopoly Markets

Chapter 13: Strategic Decision Making in Oligopoly Markets Learning Objectives After reading Chapter 13 and working the problems for Chapter 13 in the textbook and in this Workbook, you should be able to do the following things For simultaneous decisions: Explain

More information

Perfect competition is a market structure in which a large number of firms all produce the same product.

Perfect competition is a market structure in which a large number of firms all produce the same product. The Four Conditions for Perfect Competition Perfect competition is a market structure in which a large number of firms all produce the same product. 1. Many Buyers and Sellers There are many participants

More information

Perfect Competition. Chapter 7 Section Main Menu

Perfect Competition. Chapter 7 Section Main Menu Perfect Competition What conditions must exist for perfect competition? What are barriers to entry and how do they affect the marketplace? What are prices and output like in a perfectly competitive market?

More information

INTRODUCTION OLIGOPOLY CHARACTERISTICS OF MARKET STRUCTURES DEGREES OF POWER DETERMINANTS OF MARKET POWER

INTRODUCTION OLIGOPOLY CHARACTERISTICS OF MARKET STRUCTURES DEGREES OF POWER DETERMINANTS OF MARKET POWER INTRODUCTION Questions examined in this chapter include: What determines how much market power a firm has? How do firms in an oligopoly set prices and output? What problems does an oligopoly have in maintaining

More information

Microeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy

Microeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy Microeconomics Claudia Vogel EUV Winter Term 2009/2010 Claudia Vogel (EUV) Microeconomics Winter Term 2009/2010 1 / 25 Lecture Outline Part III Market Structure and Competitive Strategy 12 Monopolistic

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Economics 103 Spring 2012: Multiple choice review questions for final exam. Exam will cover chapters on perfect competition, monopoly, monopolistic competition and oligopoly up to the Nash equilibrium

More information

Pre-Test Chapter 23 ed17

Pre-Test Chapter 23 ed17 Pre-Test Chapter 23 ed17 Multiple Choice Questions 1. The kinked-demand curve model of oligopoly: A. assumes a firm's rivals will ignore a price cut but match a price increase. B. embodies the possibility

More information

Chapter 7: Market Structures Section 3

Chapter 7: Market Structures Section 3 Chapter 7: Market Structures Section 3 Objectives 1. Describe characteristics and give examples of monopolistic competition. 2. Explain how firms compete without lowering prices. 3. Understand how firms

More information

Rules of the Game. Imagine you are an oligopolist. Divide yourselves into six groups of six to seven. Each group is a company.

Rules of the Game. Imagine you are an oligopolist. Divide yourselves into six groups of six to seven. Each group is a company. Oligopoly Oligopoly A market structure in which a small number of firms compete with each other, The quantity that a firm sells depends on the firm s price and on the other firms prices and quantities

More information

Chapter 7 Monopoly and Oligopoly

Chapter 7 Monopoly and Oligopoly Chapter 7 Monopoly and Oligopoly Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. 1. Assume that in order to sell 10 more units of output

More information

Oligopoly. What Is Oligopoly? What is Oligopoly?

Oligopoly. What Is Oligopoly? What is Oligopoly? CHAPTER 13B After studying this chapter you will be able to Oligopoly Define and identify oligopoly Explain two traditional oligopoly models Use game theory to explain how price and output are determined

More information

EC508: Microeconomic Theory Midterm 3

EC508: Microeconomic Theory Midterm 3 EC508: Microeconomic Theory Midterm 3 Instructions: Neatly write your name on the top right hand side of the exam. There are 25 points possible. Your exam solution is due Tuesday Nov 24, 2015 at 5pm. You

More information

Oligopoly: Introduction. Oligopoly. Oligopoly Models. Oligopoly: Analysis. ECON 370: Microeconomic Theory Summer 2004 Rice University Stanley Gilbert

Oligopoly: Introduction. Oligopoly. Oligopoly Models. Oligopoly: Analysis. ECON 370: Microeconomic Theory Summer 2004 Rice University Stanley Gilbert Oligopoly: Introduction Oligopoly ECON 370: Microeconomic Theory Summer 00 Rice University Stanley Gilbert Alternative Models of Imperfect Competition Monopoly and monopolistic competition Duopoly - two

More information

0.0.2 Pareto Efficiency (Sec. 4, Ch. 1 of text)

0.0.2 Pareto Efficiency (Sec. 4, Ch. 1 of text) September 2 Exercises: Problem 2 (p. 21) Efficiency: p. 28-29: 1, 4, 5, 6 0.0.2 Pareto Efficiency (Sec. 4, Ch. 1 of text) We discuss here a notion of efficiency that is rooted in the individual preferences

More information

Chapter 14. Oligopoly and Monopolistic Competition. Anyone can win unless there happens to be a second entry. George Ade

Chapter 14. Oligopoly and Monopolistic Competition. Anyone can win unless there happens to be a second entry. George Ade Chapter 14 Oligopoly and Monopolistic Competition Anyone can win unless there happens to be a second entry. George Ade Chapter 14 Outline 14.1 Market Structures 14.2 Cartels 14.3 Noncooperative Oligopoly

More information

Miami Dade College ECO 2023 Principles of Microeconomics - Fall 2014 Practice Test #3

Miami Dade College ECO 2023 Principles of Microeconomics - Fall 2014 Practice Test #3 Miami Dade College ECO 2023 Principles of Microeconomics - Fall 2014 Practice Test #3 1. Papabear Corporation is a single seller of Wonderstuff. There are two substitutes for Wonderstuff. Given this situation,

More information

Econ 201 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam.

Econ 201 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam. , Fall 2007 Version A Special Codes 00000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 201 Final Exam 1. For a profit-maximizing monopolist, a. MR

More information

Chapter 4 : Oligopoly.

Chapter 4 : Oligopoly. Chapter 4 : Oligopoly. Oligopoly is the term typically used to describe the situation where a few firms dominate a particular market. The defining characteristic of this type of market structure is that

More information

Lecture 28 Economics 181 International Trade

Lecture 28 Economics 181 International Trade Lecture 28 Economics 181 International Trade I. Introduction to Strategic Trade Policy If much of world trade is in differentiated products (ie manufactures) characterized by increasing returns to scale,

More information

Competitive Strategy: Week 2. Sources of Competitive Advantage

Competitive Strategy: Week 2. Sources of Competitive Advantage Competitive Strategy: Week 2 Sources of Competitive Advantage Simon Board Eco380, Competitive Strategy 1 Added Value of a Monopolist Recall from last week Cooperation: Maximise size of pie. Competition:

More information

ECON 202: Principles of Microeconomics. Chapter 11 Firms in Perfectly Competitive Markets

ECON 202: Principles of Microeconomics. Chapter 11 Firms in Perfectly Competitive Markets ECON 202: Principles of Microeconomics Chapter 11 Firms in Perfectly Competitive Markets Firms in Perfectly Competitive Markets 1. Market Structures. 2. Perfectly Competitive Markets. 3. Maximizing Profit

More information

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition

UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on

More information

The Basics of Game Theory

The Basics of Game Theory Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #7 The Basics of Game Theory Friday - November 5, 2004 OUTLINE OF TODAY S RECITATION 1. Game theory definitions:

More information

BMME5103 Answer Scheme (Nov 2011) Part A ANSWER

BMME5103 Answer Scheme (Nov 2011) Part A ANSWER BMME5103 Answer Scheme (Nov 2011) Part A Question 1 a) The New York Times (Nov. 30, 1993) reported that the inability of OPEC to agree last week to cut production has sent the oil market into turmoil [leading

More information