OLIGOPOLY

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OLIGOPOLY
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• DEFINITION
• Oligopoly
• A few large sellers
• some control over price / quantity
• interdependence of firms
• Barriers to entry
• Products can be identical or differentiated

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• CHAPTER 7 OLIGOPOLY
• 1. A Few Large Sellers
• Lyons text 4 or fewer firms have 50 or more
  of sales
• Measures of competitiveness
• Concentration ratio of total industry sales
  by the top few firms Herfindahl index total
  of the squared values of each firms market share
  

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4CR in Canadian Industries
Source Microeconomics, 10th Cdn ed, McConnell
Brue Barbiero
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CHAPTER 7Kinked Demand CurveOligopoly Firm
D1
S
D2
Pe
Qe
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CHAPTER 7Kinked Demand Curve
Price increasesnot matched
S
D
Pe
Price decreasesmatched
Qe
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MONOPOLY
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• DEFINITION
• Monopoly
• One supplier
• restricts quantity to control price
• must lower price to sell more
• Barriers to entry

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• CHAPTER 7 OLIGOPOLY
• 2. Barriers to Entry
• Large capital requirement
• Volume of sales / minimum efficient scale of
  production
• Consumer acceptance
• Legal barriers (patents, licensing, etc.)

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• DEFINITION
• Natural Monopoly
• A single producer who is able to produce at
  lower cost than competing firms could
• Usually in industries with large economies of
  scale

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Chapter 7 Monopoly

• PROS
• Make large economies of scale possible
• Able to engage in RD that brings about new
  methods, technologies, and products
• Develop high quality staff by offering relatively
  high wages and good working conditions

• CONS
• Provide less output at higher prices
• Cause both productive and allocative inefficiency
• Able to make ongoing economic (excess) profits
• Create a more unequal distribution of wealth in
  society

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• Market Structures
• perfect competition
• monopolistic competition
• oligopoly
• monopoly

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CHAPTER 7Homework

• READ
• Textbook, p.128 - 150
• STUDY GUIDE
• Questions