summary covering the chapter about imperfect competition in microeconomics, the industry structure between perfect competition and monopoly. It describes different types of oligopoly and their characteristics.
Microeconomics
Oligopoly and monopolistic competition
—> What is an oligopoly?
—> What Does Equilibrium Mean in an Oligopoly?
—> Oligopoly with identical goods: Cartels and Collusion
—> Oligopoly with identical goods: Bertrand Model
—> Oligopoly with identical goods: Cournot Model
, • Imperfect competition: The industry structure between perfect competition and
monopoly
• Oligopoly: market structure characterized by competition among a small
number of rms
◦ They have some market power and there is some competition
◦ Factors a ecting P and Q :
• whether the companies make identical products (as in an oil
oligopoly) or products that are slightly di erent from one another
(like Coke and Pepsi)
• how intensely the companies compete
• whether they compete with one another by choosing the prices
they charge or the quantities they produce
• Monopolistic competition: a type of imperfect competition where a large
number of rms have some market power, but each makes zero economic
pro t in the long run
• What Does Equilibrium Mean in an Oligopoly?
◦ Perfect competition & monopoly
• Qs = Qd --> market stable with no excess supply or demand = the
market clears
▪ consumers and producers do not want to change their
decisions
◦ The problem in Oligopoly: each company’s action in uences what the
other companies want to do
• To achieve an outcome in which no rm wants to change its
decision means determining more than just a price and quantity for
the industry as a whole --> it has to apply to each rm
individually
◦ Oligopoly: starts with market clears but adds a requirement
• no company wants to change its behavior (its price or quantity)
once it knows what other companies are doing
• MUST be stable among the individual producers in the market
◦ Nash Equilibrium --> equilibrium in which each rm is doing its best
conditional on the actions taken by other rms
• Oligopoly with Identical Goods:
◦ Model --> Collusion and Cartels: all the rms in an oligopoly coordinate
their production and pricing decisions to collectively act as a monopoly to
gain monopoly pro ts to be split among themselves
• Assumptions
▪ Firms make identical products
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