Oligopoly Market Structures

A market structure with a small number of firms, where firms' decisions are interdependent and can be collusive or non-collusive.

Firms act like a monopoly, setting prices and output to maximize profits.

A model of oligopoly where the threat of new entrants (no barriers to entry) keeps prices competitive, even with few firms.

Firms coordinating their actions, like setting prices or output.

Firms follow similar pricing strategies without explicit agreement.

Prices are resistant to change because of factors like kinked demand curves.

A demand curve with a kink, where the firm's marginal revenue is discontinuous.

North American Industry Classification System—an industry classification system that groups firms by type of economic activity and allows for categorization of firms.

A measure of market concentration, calculated by summing the squared market shares of all firms in an industry.

Percentage of total industry sales accounted for by the top firms (usually the top four).

An industry with a low Herfindahl Index and a low Concentration Ratio.

Government policies to promote and maintain competition in markets.

Assessing competitiveness based on the actual behavior of firms in the market.

Evaluating competitiveness based on the characteristics of the market structure (like concentration).

A law targeting monopolies and promoting competition in the industry.

The ability of a firm to control prices and exclude competition.

Laws designed to prevent unfair business practices and monopolies, such as the Sherman Act and Clayton Antitrust Act.

A famous case that challenged monopoly practices. Though initially seen as a violation of antitrust law, it ultimately led to the development of structural monopolies.

Globalization has shifted American business ideology by increasing competition. This is due to the integration of markets and increased global trade.

The rate of technological change is accelerating. This leads to more competition and rapid innovation.

Modern businesses collect vast amounts of consumer data. There's a concern about whether this data is used to stifle competition.

Some argue that large platforms like Google should be regulated like public utilities to prevent unfair competition.

Competition can incentivize efficiency, while monopolies can lead to complacency and inefficiency.

A strategy where one company acquires another to gain control. This can involve acquisitions of entire firms or just majority ownership.

Governments prioritize social impacts over pure efficiency in markets, sometimes allowing monopolies to exist even if they create inefficiencies. This means the government considers things like job losses, environmental damage, or ethical implications in addition to pure economic efficiency.

Firms can try to chip away at a monopoly through political means (e.g., lobbying for regulations) or economic means (e.g., creating a better product or finding a loophole in the monopoly's patent).

Reverse engineering is when a company takes apart a competitor's product to understand how it works, and then uses that information to create a better version of the product within legal bounds.

A natural monopoly occurs when it's more cost-effective for a single firm to provide a good or service than for multiple firms to compete. These companies often have high initial setup costs and low costs for each additional unit they produce.

Regulatory boards can set fair prices for natural monopolies to ensure they're not exploiting their market power. This price includes all costs, plus a normal profit, preventing the firm from generating excessive profits.

Breaking up monopolies can create competition, but it's only efficient if the industry isn't naturally a monopoly due to economies of scale (like power lines, which are cheaper to operate as a single entity). If competition is naturally inefficient, deregulation can lead to higher prices and lower quality.

In competitive markets, companies buy their monopoly power. Marginal cost of this power is equal to the marginal benefit, meaning companies invest as long as there are benefits.

Platform monopolies, like social media or online marketplaces, exhibit network externalities - the value of the platform increases with the number of users. Two things happen: 1. The market becomes winner-take-all, 2. Early movers get significant advantages.

A theory that stock prices already reflect all available information, making it impossible to consistently beat the market.

Stock market prices move unpredictably, making future price prediction impossible.

Index funds track a specific market index (like the S&P 500) while mutual funds are actively managed by portfolio managers.

Investing in a way that doesn't actively try to beat the market, like index funds.

Spreading investments across different assets to reduce risk.

The benefit a company gains from being the first to enter a market, often creating barriers for competitors.

People's actions often reveal more about their true beliefs than their words.

Randomly selecting investments can sometimes lead to higher returns than a calculated approach.