Podcast
Questions and Answers
What is the primary characteristic that distinguishes oligopolies from other market structures?
What is the primary characteristic that distinguishes oligopolies from other market structures?
Which type of oligopoly is characterized by firms producing identical products?
Which type of oligopoly is characterized by firms producing identical products?
In the Cournot model, what do firms simultaneously choose?
In the Cournot model, what do firms simultaneously choose?
What is the term for agreements among firms to limit competition and increase profits?
What is the term for agreements among firms to limit competition and increase profits?
Signup and view all the answers
What is the result of oligopolistic behavior on the economy?
What is the result of oligopolistic behavior on the economy?
Signup and view all the answers
What is the term for the allocation of resources to unproductive activities, such as advertising and lobbying, in an attempt to gain an advantage?
What is the term for the allocation of resources to unproductive activities, such as advertising and lobbying, in an attempt to gain an advantage?
Signup and view all the answers
In the Stackelberg model, which firm sets its output level first?
In the Stackelberg model, which firm sets its output level first?
Signup and view all the answers
What is the term for the loss of consumer surplus and producer surplus due to oligopolistic behavior?
What is the term for the loss of consumer surplus and producer surplus due to oligopolistic behavior?
Signup and view all the answers
Study Notes
Characteristics of Oligopolies
- A market structure in which a small number of firms compete with each other
- Interdependent decision-making: firms consider the potential reactions of their competitors when making decisions
- Non-price competition: firms often engage in advertising, product differentiation, and other forms of non-price competition to gain an advantage
Types of Oligopolies
- Homogeneous oligopoly: firms produce identical products (e.g., steel, aluminum)
- Differentiated oligopoly: firms produce differentiated products (e.g., cars, smartphones)
Oligopoly Models
-
Cournot Model:
- Firms simultaneously choose their output levels
- Firms take into account the potential reactions of their competitors
-
Stackelberg Model:
- One firm (the leader) sets its output level first
- The other firms (the followers) then set their output levels
-
Bertrand Model:
- Firms simultaneously choose their prices
- Firms take into account the potential reactions of their competitors
Collusion and Cartels
- Collusion: agreements among firms to limit competition and increase profits
- Cartel: a formal agreement among firms to fix prices, output, or other competitive variables
- Antitrust laws: regulations that prohibit collusive agreements and other anti-competitive practices
Oligopoly and Welfare
- Deadweight loss: the loss of efficiency that results from oligopolistic behavior
- Rent-seeking: the allocation of resources to unproductive activities, such as advertising and lobbying, in an attempt to gain an advantage
- Welfare loss: the loss of consumer surplus and producer surplus due to oligopolistic behavior
Characteristics of Oligopolies
- A market structure characterized by a small number of firms competing with each other
- Firms engage in interdependent decision-making, considering potential reactions of competitors
- Firms often use non-price competition, such as advertising and product differentiation, to gain an advantage
Types of Oligopolies
- Homogeneous oligopoly: firms produce identical products, e.g. steel and aluminum
- Differentiated oligopoly: firms produce differentiated products, e.g. cars and smartphones
Oligopoly Models
Cournot Model
- Firms simultaneously choose output levels, considering potential reactions of competitors
- Firms aim to maximize profits by anticipating competitors' output levels
Stackelberg Model
- One firm (the leader) sets its output level first
- Other firms (the followers) then set their output levels, anticipating the leader's reaction
Bertrand Model
- Firms simultaneously choose prices, considering potential reactions of competitors
- Firms aim to maximize profits by anticipating competitors' prices
Collusion and Cartels
- Collusion: agreements among firms to limit competition and increase profits
- Cartel: a formal agreement among firms to fix prices, output, or other competitive variables
- Antitrust laws: regulations prohibiting collusive agreements and other anti-competitive practices
Oligopoly and Welfare
- Deadweight loss: the loss of efficiency resulting from oligopolistic behavior
- Rent-seeking: allocation of resources to unproductive activities, such as advertising and lobbying, to gain an advantage
- Welfare loss: loss of consumer surplus and producer surplus due to oligopolistic behavior
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Learn about the characteristics of oligopolies, including interdependent decision-making and non-price competition, and the different types of oligopolies.
