Chapter 13: Oligopoly

Oligopoly

• Few large producers

• Limited control over price

• Mutual interdependence

• Payoff Matrix and Game Theory

4-firm concentration ratio

Percentage of sales by four largest firms

4-firm concentration ratio = output of four largest firms / total output in the industry

Herfindahl Index

Sum of squared market shares

HI = (%S₁)² + (%S₂)² + (%S₃)² + … + (%S_n)²

One Time Game / Nash Equilibrium

Outcome from which neither firm wants to deviate

Repeated Game

Game that recurs - firms may cooperate and not compete strongly

• Coca-Cola and Pepsi

• Walmart and Target

• Nike and Adidas

Sequential Game

Firm applies strategies sequentially