Lecture 18 Oligopoly

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Lecture 18 - Oligopoly

• Wissinks Words

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remarks

• Not finished with monopoly yet.
• Analysis of simple monopoly conduct is pretty
  straightforward once you recognize the new
  relationship between demand and marginal revenue.
• Performance analysis of the simple monopoly is
  summed up in the dead weight loss - a measure of
  the allocative inefficiency attributable to
  simple monopoly pricing.

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price discrimination

• charge different prices for different units with
  out cost basis.
• charge different prices to different people with
  out cost basis.
• charge the same price when there are costs
  differences.

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• Requirements for successful price discrimination
• some monopoly power
• ability to prevent resale
• specific and detailed information about demanders

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two favorite stories

• Arsenic Old Lace
• Rohm and Haas plan to prevent resale in plastic
  molding powder markets.
• I Can See Clearly Now
• Bausch Lombs pricing and marketing strategy in
  the contact lens markets.
• Price discrimination comes in all sorts of
  interesting shapes and sizes, once you recognize
  it.

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onto oligopoly

• Oligopoly is one of the most interesting and
  difficult markets to model.
• Lots of direct and immediate interaction among
  rivals. Lots of strategic interaction.
• Game Theory is frequently employed to model this
  interaction and predict the conduct of
  oligopolists.

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three basic models

• Competition in quantities Cournot-Nash
  equilibrium
• Competition in prices Bertrand-Nash equilibrium
• Collusive oligopoly Chamberlin notion of
  conscious parallelism

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important and debated questions

• Where will the price and quantity end up in
  oligopolistic markets?
• Will there be successful collusion?
• Will existing firms try to erect entry barriers?
  Will they succeed?
• Will the market outcome be efficient? Equitable?
  

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some famous oligopolies

• RTE breakfast cereal (Ready-To-Eat) market
• Domestic automobile market
• Tobacco products market
• Carbonated beverages market
• Beer market
• Retail office supply superstores market

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cartels

• Often look for cartel formation (or collusion) in
  oligopolistic markets.
• A very famous cartel OPEC (organization of
  petroleum exporting countries)
• What leads to stable collusion? Can there be
  stable collusion? Or are cartels only a flash
  in the pan?