Oligopoly Flashcards
What is Oligopoly?
An oligopoly is a market structure with a few large, interdependent firms dominating the industry.
Key features:
Few sellers, many buyers
Products can be differentiated or homogeneous
High barriers to entry (e.g., economies of scale, patents)
Firms are interdependent and consider each other’s actions
Theories of Oligopolistic Behavior
Game Theory: Analyzes strategic interactions between firms, considering factors like cooperation, collusion, and price wars. (e.g., Prisoner’s Dilemma)
Kinked Demand Curve: Models how a firm might perceive a sharp change in demand if it raises prices (others might not follow), but a smaller change if it lowers prices (others might match).
Recent Examples of Oligopolies
Smartphone industry: Apple, Samsung, Huawei
Beverage industry: Coca-Cola, Pepsi
Airlines: Major international and domestic carriers
Social media platforms: Facebook, Meta (formerly Whatsapp & Instagram), Twitter
Streaming services: Netflix, Hulu, Disney+
Government Policies and Oligopolies
Antitrust laws: Aim to prevent collusion and promote competition (e.g., breaking up monopolies)
Regulations: May address issues like price gouging, product safety, and environmental impact.
Merger control: Governments may review and potentially block mergers that could significantly reduce competition.
Oligopoly and Welfare of Society
Potential benefits:
Efficiency from economies of scale
Research and development driven by competition
Potential drawbacks:
Reduced price competition (may lead to higher prices)
Limited product variety and innovation
Collusion can harm consumer welfare
Questions about Oligopolies
How can governments ensure a balance between encouraging innovation and preventing excessive market power in oligopolies?
Do oligopolies stifle competition and lead to higher prices for consumers?
How can we promote greater product variety and innovation within oligopolistic markets?
What role can technology play in increasing competition within oligopolies?
