13.5 Oligopoly and Efficiency

What is the “triple equality” in pure competition?

P = MC = minimum ATC.

Does oligopoly achieve the triple equality?

No. Oligopoly usually has P > MC and P > ATC, and output is below minimum ATC.

What does P > MC mean?

Allocative inefficiency (society doesn’t get the right amount of the product).

What does producing above minimum ATC mean?

Productive inefficiency (firms aren’t producing at the lowest possible cost).

Do oligopolists often earn long‑run economic profits?

Yes — many oligopolists earn large profits year after year.

Why might oligopoly be worse than monopoly?

Because monopolies are regulated, but oligopolies can collude secretly and still look competitive.

How does foreign competition affect oligopolies?

It increases rivalry and forces more competitive pricing.

What industries have seen this effect?

Steel, cars, video games, electric shavers, outboard motors, social media apps.

What is limit pricing?

When oligopolists keep prices lower than the profit‑maximizing level to discourage new firms from entering.

How does limit pricing help society?

It brings prices closer to MC and output closer to competitive levels.

Why might oligopolies innovate more than competitive firms?

They have large profits to fund R&D and barriers to entry protect their investment.

How does innovation offset oligopoly inefficiency?

It leads to better products, lower costs, and lower prices over time.

Is oligopoly usually efficient?

No — it typically fails both allocative and productive efficiency.

Can oligopoly sometimes benefit society?

Yes — through foreign competition, limit pricing, and technological innovation.