Chapter 17 - Oligopoly

Perfect Price Discrimination

the price discrimination that results when a monopolist charges each consumer the maximum that the consumer is willing to pay

What is the reason that oligopolists do not sign an enforceable agreement to cooperate rather than compete

It is illegal in the United States

Imperfect competition

A situation in which firms compete but also possess some degree of market power

In most oligopolies, prices are

kept somewhere between the monopoly level and the noncooperative level

Christmas sales getting earlier and earlier and encroaching on Thanksgiving Day is a form of

the prisoner’s dilemma

Prisoner’s Dilemma

game theory concept where two individuals acting in their own self-interest do not produce the optimal outcome for the group

Oligopoly

market that is dominated by a small number of firms

Studying oligopoly behavior is complicated because

it is not a single firm considering its costs and pricing in a vacuum

The profits of a large firm depend heavily on

the actions taken by other large firms

The HHI for an industry is

the sum of the squares of each firm’s share of market sales

HHI less than 1500

strongly competitive market

HHI of 1500-2500

somewhat (moderately) competitive market

HHI above 2500

oligopoly

Duopoly

an oligopoly consisting of only two firms

with only two firms in the industry, each realizes that

profits would be higher if it limited its production (and kept prices higher)

Cooperation between firms may be _______, but it is ______

profitable ; unstable

Collusion

firms cooperating to raise each others’ profits

Cartel

strongest form of a collusion, an agreement by several producers to restrict output in order to increase their joint profits

OPEC (organization of petroleum exporting countries)

limits the production for each member nation to raise oil prices.