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Patents
Legal protection granted to inventors that stimulates inventive activity by making research more attractive.
Oligopoly
A market structure with a small group of firms and substantial barriers to entry, allowing each firm to influence price and affect rival firms.
Monopolistic competition
A market structure where firms have market power but no additional firms can enter and earn positive profits.
Cartel
A group of firms that explicitly agree to coordinate their activities, collectively earning monopoly profits.
Laws against cartels
Antitrust laws and competition policies limit or forbid cartels, but some operate legally or believe they can avoid detection or face insignificant punishment.
Reasons for cartel failure
Non-cartel members supplying large quantities of goods and each member having an incentive to cheat on the cartel agreement.
Maintaining cartels
Techniques such as inspecting each other's books, dividing the market, using industry organizations, and enforcing agreements through contracts or government help.
Barriers to entry
Limit the number of firms and help cartels detect and punish cheating.
Mergers
When firms cannot collude due to antitrust laws, they may try to merge instead.
Cournot Oligopoly
Firms simultaneously choose quantities without colluding, considering imperfect information about rivals' output.
Cournot equilibrium
A set of quantities chosen by firms where no firm can obtain a higher profit by choosing a different quantity, based on beliefs about rivals' output.
Equilibrium, elasticity, and the number of firms
Price to consumers is lower if firms set output independently, and the Lerner Index depends on the elasticity of demand.
Nonidentical firms
Costs and product differentiation affect firms' best-response functions and output in a Cournot equilibrium.
Monopolistic competition
Markets without barriers to entry, where firms face downward-sloping residual demand curves and charge prices above marginal cost.
Monopolistically competitive equilibrium
Marginal revenue equals marginal cost, price equals average cost, and firms make zero economic profit due to entry.
Minimum efficient scale
The smallest quantity at which the average cost curve reaches its minimum, determining the firm's capacity.
Number of firms in monopolistically competitive equilibrium
Depends on firms' costs, with larger fixed costs leading to fewer firms in equilibrium.
Note
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