Background

The theory of competition monopolistis a lot using the assumptions of perfect

competition and monopoly, but the theory provides a more precise picture of the situation in the
real market, where the world of business operations. It terjad because the theory is aware that
companies have the ability in a certain boundaries in controlling prices, but their actions are
limited by the large number of replacement items (substitution) of their products.
Nevertheless, this theory assumes that companies make decisions without regard to rival
companies reactions explicitly. The assumption of such behavior may be appropriate for some
other industry and if the actions of the companies individually will result in reactions of some
rival companies, then there was market oligopoly.

Oligopoly Market Conditions

Market structure of oligopoly could happen in the industry where the market areas of an
enterprise is very small. In an oligopoly market exists that there were two companies that
produce a particular product called duopoly. The production is done by the market duopoly is
homogeneous.

P eran market and market strategy

To gain an understanding of the role and market strategy in this type of market oligoply,
with consideration of situations in which some companies are selling products that are
homogeneous, such as: cement, mineral water, flight service and others. In determining how
much to charge, the Manager should consider the impact of its decision on other companies. For
example, when one company lowered the price, whether other companies join the downgrade too
or when a company increases the price, other companies increase prices or maintain current
rates. The decision to lower or raise the price on a response Manager.
Figure 9-1
 As a reference point, suppose that the company originally was on point B in Figure 9-1,
charging a price of P0. Demand curve D1 is based on the assumption that a rival will be price
changes, while the D2 is based on the assumption that they will not match the price changes. A
request is said to be more elastic when rival in accordance with price changes. The simple reason
in this case is when the price given is declining, the company would sell more if they did not cut
the price of its rival (D2). Similarly, in the event of a price increase, the company will sell more
when the rivals also raised the price of their (D1) rather than the Corporation maintains the same
price as other companies (D2). The previous analysis suggests that demand for the company's
products in the oligopoly is heavily dependent on how to respond to a rival company's pricing
decision. If the competitor will be demand curve, price changes for the company's products are
given by D1. In this case, the Manager will maximize profit where the marginal revenue curve is
related to the demand equals the marginal cost of D1. If the competitor will not be found changes
in prices, demand curves for the company's products provided by D2. In the example, the
Manager will maximize profit where the marginal revenue curve is related to the demand equals
the marginal cost of D2. In any case, maximising the benefit rules are the same as those under
the monopoly; the only difficulty for the company managers are to determine whether or not the
rivals will match the price change.

Maximum Benefit On Four Kinds Of Oligopoly

A. Sweezy Oligopoly
Sweezy oligopoly is a broken request model developed by sweezy. Sweezy contended that
if there's a manufacturer build oligopoly market that seeks to raise prices then he will lose
the subscription because there are no other producers were willing to raise the price. But
instead, build oligopoly market producers can't expand the market by lowering prices
because competitors will lower price with lower level again. As a result there was a price
war. In this case the producers build oligopoly markets influence each other build
oligopoly market can not expand the market by lowering prices because competitors will
lower price with lower level again. As a result there was a price war. In this case the
producers build oligopoly markets influence each other, but do not do collusion (a deal).
The characteristics of oligopoly sweezy's model:
There are a few companies in the market that serve more consumers
Companies that produce goods similar but slightly different
Each company in this market believed that their competitors will join a price
reduction when one of the companies lower the price, but competitors did not want
to come raise the price when one of the companies raise prices.
There are barriers to entry market oligopoly.

Figure 9-2
Description of Figure 9-2:
Therefore, an Enterprise Manager know that she compete in the market build oligopoly,
sweezy means competitors will follow when he lowered the prices, and competitors will not
follow when he raised the price, then the demand curve/line demand of production will follow
the line in Figure 9 ABD1-2. For the above price P0 then the demand curve is the D2, then
Marginal Revenue following the demand curve. For a price below the P0 curva demand D1 is the
Marginal Revenue, and his following D1. Then the Marginal Revenue (MR) is the original
intersect with D2 on Q0. From the picture it looks Marginal Revenue "falls down" follows a
demand curve D1. In other words the Marginal Revenue curve to build oligopoly sweezy market
indicated by the line MR is the ACEF in Figure 9-2.
The maximum level of gain/profit (profit maximizing) occurs if Marginal Revenue is equal
to Marginal Cost (=), and the price at maximum gain/profit is the price which consumers are still
willing to buy at that price at the level of production (output). For example, if the Marginal Cost
is the Marginal Revenue, then the MC0 = Marginal Cost occurs at point C (see Figure 9-2). So
the profit maximizing occurs at the level of production price P0 and Q0. On the market there are
build oligopoly Sweezy area limit (range) (CE) where this change limits on the Marginal Cost no
Profit maximizing impact on certain level of output. It's very different with the Perfect structured
Competitive market, Monopoly, Monopolistic and Competitive, where on this market, namely
when production (output) goes up, then the Marginal Cost will go down. To find out why this
happens can be explained as follows: Suppose the Marginal Cost down from MC0 MC1 to in
Figure 9-2. Then the Marginal Revenue (MR) is now equal to Marginal Cost at point E, but at the
level of production of Q0. So companies still continue to get the profit maximizing production
Q0, on price level P0.

B. Cournot Oligopoly
Cournot model, also known as Augustin Cournot duopoly was developed by a French
economist in 1838. The main assumption of this model is that if a company has determined
its production level, the company, aka will not change it. It is these assumptions on the
basis of the company's competitors will determine the level of production. In a market
duopoly only two companies that sell products that are homogeneous, thus there is only
one market price. The market price is determined by the balance between the total amount
of output produced by the two companies with the market demand.
The characteristics of this market are:
There are some companies that cater to many consumers
The companies produce a uniform or a little no difference (differentiated product)
Each company believes rivals will still maintaining a constant output, if one of the
companies changed its output level.
There is an obstacle to the company's new entry into this market.
The difference with Sweezy market are:
In Cournot markets, the decision changes the level of production at one of the
company's production rate changes are not followed by its competitors.
In Cournot markets production circulating on the market can be uniform or differ
(differentiated product)
The function of the market Balance and reactions (Reaction function and Equilibrium)
Suppose there are 2 companies in the market of Cournot oligopoly (Cournot Duopoly) every
company has the wisdom of producing its own output (remember the nature of the Cournot
market!!!). 1, the company will equalize the Marginal Cost = Marinal Revenue. Remember when
the Duopoly, then MR 1 firms will be affected by the level of the output of the company 2,
meaning that the higher the level of output in company 2, will result in the more low the market
price of the goods that, due to the next is the Marginal Revenue (MR) company 1 will go down.
This means that profit maximizing enterprises: 1 highly dependent (heavily influenced) by the
company's level of output 2. So the higher the level of production (output) company 2 would
lower the profit maximizing company 1. This relationship is called the Reaction Function
Definition Reaction Function (a function of reaction); is a function (equation) which determines
the timgkat profit maximizing level of output in the form of one company because it is
influenced by the level of output that is produced by other companies.
The profit maximizing output from the company if the company produces 2 1 Q2 = Q1 r1
(Q2) and the same profit maximizing company 2, which is where the company produces 1 Q1
units are: Q2 = r2 (Q1) State of the above can be described in Figure 9-3: Output 1 company,
(Q1) pointed out by a horizontal line (Axis), and the output of the company 2, (Q2) are indicated
by a vertical line. Suppose this is a graph of the actual events. Suppose the company 2 not
producing at all (Q2 = 0), then the profit maximizing company 1 will be the QM 1, where r1 is
the reaction function of the company's 1. Then at the point where the company does not produce
output 2 then 1 companies like monopoly.

Figure 9-3
 For example, the production Company 2 = 0, then the profit maximizing company 1 is
QM 1, where the reaction function of the company 1 indicated by r1 and this relates to the
production of the company's output 2 is 0 (Q2 = 0). The output is QM 1 indicates that company 1
to be a monopoly. 2 If the company producing the Q * 2 units, then the output to achieve a profit
maximizing company 1 will become Q * 1, where it is the point on the line r1, which this is
demonstrated in the company's output level 2 namely Q * 2. This is causing the output level to
achieve a profit maximizing company 1 decreased, as a result of rising output in company 2. Or
in other words demand of company's products highly dependent of outputs (products) produced
by the company 2. If the production company 2 goes up, then the demand of production and the
marginal revenue of the company 1 will go down. If the company producing 1 unit = 0, then the
tingkst production output for memksimumksn profit in company 2, Q2 is M (see the company's
reaction function geris. 2) So the company 2 be a monopoly. But when the company produced 1
Q1 * units, then the output level to maximise profits in the company 2 is Q2 * that is located on
the r2 caused by Q1 * by company 1.

Balance (equilibrium) in Cournot markets.

Cournot equilibrium is a situation where there were no companies that want of
passionate/not to change production levels (output). This equilibrium point occurs at the
intersection between r1 and r2. See Figure 9-3: suppose firm 1 produces the output Q * 1, at this
output, the level of output that can maximise the profit the firm 2 will be indicated at the point of
A line in r2. Because the company gets a favorable output 2, then the profit of the company
maksimizing 1 is no longer in the QM 1, but will be located on the line B r1 emphasis. Because
of reduced output caused by company 1, then point C is the point on the line of the company's
reaction function 2, which memaximumkan the profit. Because of the level of the company's new
production company, 2 1 will reduce output again to a point D must reaction function. Until
when the mutual change output takes place? That is until the point E is achieved. On point E, the
company manufactures 1 Q * 1 and 2 produce Q * 2 units. In such a situation there is no
company that wished to amend the level of production, because sure other companies will also
not change its production. Kedaan this is the intersection between r1 and r2. Point E is called a
Cournot market equilibrium point. Managers who are in the market build oligopoly cournot
would produce output, if MR = MC, to maximise its profits.
Formulas: a Marginal revenue to build oligopoly: Cournot
(product sergam/Cournot Duopoly with homogeneous)
P = a b (Q1 + Q2) where a and b are positive constants
Thus, the Marginal revenue: the company 1 MR1 (Q1, Q2) = a bQ2 2bQ1
The marginal revenue of the company 2 MR2 (Q1, Q2) = a 2bQ2 bQ1
Then the company's Revenue was 1: R1 = PQ1 = [a b (Q1 + Q2) Q1 MR1 (Q1, Q2) = 1 2 1
So the Marginal Revenue from each company does not depend on the output of the company
itself, but very dependent from the output that is produced by other companies. When the
company boosted output, 2 prusahaan 1 marginal revenue would drop. This is caused when the
company 2 raise output, then the market will go down in price, and this causes a marginal
revenue for the company were down 1.
Formulas, reaction function for Cournot duopoly:

C. Stackelberg Build Oligopoly

Up to this point we have been analyzing the situation is symmetrical, that build oligopoly
2 companies is a "mirror image" of the company 1. Build oligopoly in many markets,
 however, the company is different from each other. In Stackelberg build oligopoly, with
different companies when they make a decision. In particular, one of the companies
(leaders) assumed
make a decision before the exodus of other companies. The given knowledge leader that
output of all other companies (follower) takes as given the output of the leader and pick
the output that maximize profits. Thus, in each build oligopoly Stackelberg follower
behave like build oligopoly Cournot. In fact, the leaders took no follower output as given
but rather choose the output that maximize profit given that every follower will react to
the decision of this output corresponds to the function of Cournot's reaction.
An industry marked as build oligopoly Stackelberg if
There are some companies that cater to many consumers.
The companies produce good homogeneous or differentiated.
A single company (leader) chooses the output before all other companies
choose their output.
All other companies (follower) takes as given the output of the leader and pick
the output that maximize profits given the output of the leader.
There are barriers to entry.
To highlight the build oligopoly Stackelberg, let's consider a situation in which there are
only two companies. 1 company is the leader and thus have a "first mover" advantage; that is, the
company before the company produces 1 2. Company 2 was a follower and maximize profits
given the output generated by the leader.
Because followers produce after the leader, the follower's output levels maximize profits
is determined by its reaction function. This is denoted by r2 in Figure 9-4. However, leaders who
know the followers will react in accordance with r2. As a result, the leader must choose the level
of output that will maximize profit given that followers react to whatever leader isn't.
How leaders choose the level of output to generate? Knowing the followers will produce
along with r2, the leader just choose the point on the curve of the corresponding reaction of
followers with the highest level of profit. Because the leader's advantage increased as a isoprofit
curve closer to output a monopoly, which is generated by the selections will be on point S in
Figure 9-11. This isoprofit curve, denoted generate highest profit consistent with the reaction
function of the follower. This is tangential to the company's reactions to these 2 functions. Thus,
leaders generate followers who watched this and produces an output which is a response to
maximize profits to benefit accordingly from the given by the leaders and people of followers.
Note that the leader gains higher than them on the Cournot equilibrium (point C), and the
profits lower than followers in the Cournot equilibrium. With the first, the leader can move
obtain higher profits than would otherwise occur.
Figure 9-4

Algebraic solutions to build oligopoly Stackelberg

also can be obtained, provided that company b has information about market demand and cost. In
particular, given that the decisions of the follower is identical to the Cournot model. For
example, with the product of homogeneous, linear demand, marginal cost is constant, and the
output of the reaction function is given by the followers

that's just the reaction as a function of the followers of Cuornot. However, the leader in
Stackelberg build oligopoly reaction functions take into account when choosing the Q1. With
linear demand functions and marginal cost is constant, the profit leader

Leaders choose Q1 to maximize the benefit of this expression. It turns out that the value of
Q1 that maximizes profit leader is

Formula: Equilibrium Output in Stackelberg build oligopoly. For linear (inverse) function
requests
 Because the price exceeds marginal cost, the industrial output in build oligopoly
Stackelberg was below the level of efficient social. This means dead weight loss, but dead weight
losses lower than arising under pure monopoly.

D. Bertrand Build Oligopoly

To further emphasise the fact that there is no single model of build oligopoly managers
can use in all circumstances and to describe that build oligopoly power does not always
imply the company will make a profit is positive, we will further examine the Bertrand
build oligopoly. Treatment assumes the company selling the same products and that
consumers are willing to pay monopoly prices (limited) for good.
An industry marked as build oligopoly Bertrand if
There are some companies on the market that cater to many consumers.
The companies produce identical products with marginal cost is constant.
Companies engaged in price competition and to react optimally to the prices
charged by competitors.
Consumers have perfect information and no transaction fees.
There are barriers to entry.
 From the point of view of managers, Bertrand build oligopoly is not desirable: this leads
to zero economic profit even if there are only two companies in the market. From the point of
view of consumers, Bertrand desired build oligopoly: this leads to exactly the same result as a
perfect competition market.
To explain more precisely the statement before, consider Bertrand duopoly. Because
consumers have perfect information, and zero transaction costs, and because the products are
identical, all consumers will be buying from the company charging the lowest price. For
concrete, suppose the company 1 cost price monopoly. With a bit of an understatement at this
price, the company 2 will catch the entire market and make a profit is positive, while the
company 1 will sell anything. Therefore, the company will reciprocate with disparaging the
company 1 2 it lower prices, so that the retaking the entire market.
When will this "price war" ended? When any company subject to marginal cost the same
price: P1? P2? MC. Considering the prices of other companies, whether the company will choose
to lower the price, then the price will be below marginal cost and it will make a loss. Also, no
company wants to raise the price, and then will sell anything. In a nutshell, Bertrand build
oligopoly and homogeneous products lead to a situation where the marginal cost is the cost of
each company and economic profit is zero.
Since P = MC, homogeneous products Bertrand build oligopoly results in efficient social
level of output. Indeed, the total market in accordance with the perfect competition in the
industry, and there is no deadweight loss. Chapters 10 and 11 provide the strategies managers can
be used to reduce the "trap of Bertrand" -the competition cut-which ensues in homogeneous,
product build oligopoly Bertrand. As we will see, the key is to either raise the cost of switching
or eliminate the perception that the company's products ' are identical.
Differentiation of produkdisebabkan by this strategy allows the company to price above
marginal costs without losing customers to rivals. The annex to this chapter illustrates that, under
differensiasi product price competition, the reaction function tilts up and equilibrium occurs at
the point where the price exceeds marginal cost. This explains, in part, why a company like
Kellogg and General Mills spends millions of dollars on advertising designed to persuade
consumers that their brands compete in corn flakes are not identical. If consumers do not see the
brand as a product is differentiated, two makers of breakfast cereals should consider the price
with marginal cost.
The capture of the market
So far, we have emphasized the strategic interaction between companies that are in the
build oligopoly. Strategic interactions may also occur between the company's existing and
potential entrants to the market. To illustrate the importance of this interaction and similarities to
Bertrand build oligopoly, let's suppose the market that is served by a single company but there
are other companies (potential entrants) are free to enter the market whenever it chooses.
Before we continue our analysis, let's make it more precisely what we mean by free
admission. What we have in mind here is what economists refer to as contestable markets. The
market is contestable if:
All manufacturers have access to the same technology.
Consumers respond quickly to price changes.
There is no company that can respond quickly by lowering prices.
There is no cost of scorch.
If this condition continues, four incumbent companies (companies that are on the market)
have no market power over the consumer. This means that the equilibrium price in accordance
with marginal costs, and the company's economic profit zero. This is true even if there is only
one company that is on the market.
The reason for this result follows. If there are companies that are subject to a price more
than what they needed to cover the costs, the new company could soon enter the market with the
same technology and set the price slightly below the company's existing prices. Because the
incumbents cannot quickly respond by lowering their prices, participants will get customers all
the incumbents by charging lower prices.
Because incumbents know this, they have no choice but to charge low prices equal to the
cost of production to prevent participants. So, if the market is not perfectly contestable, company
discipline with the threat of entry by new firms.
Conditions that are important to the market is contestable absence costs charred. In this
context, the cost of the bail is defined as new entrants have to bear costs that cannot be recouped
when getting out of the market. For example, if a participant pays $ 100,000 to a truck to enter
the market for moving service, but receive $ 80000 for trucks on the market, $ 20000 out is the
cost of entering the market sank. Similarly, if the company pays the costs refunded for $ 20000
for redirected right to rent a truck for a year to enter the market, reflects the costs associated with
entry are sunk. Or if a small company has to suffer losses of $ 2,000 per month for six months
while waiting for customers to "switch" to the company, raises $ 12000 scorched cost.
The cost of the bail is important for the following reasons. Suppose the company
charging a high price is the incumbent, and newcomer calculates that it could earn $ 70000 by
entering the market and charging lower prices than existing companies. This calculation is, of
course, conditional on the companies have continued to fill their current price. Suppose to go in,
the company must pay the cost of the bail from $ 20000. If the companies enter the market and
the incumbent kept charging high prices, favorable entry; Indeed, the company would generate $
70000. However, if the company does not keep doing charging a high price but instead lowered
their prices, participants can be left without a customer. In this regard, participants lose the cost
sunk from $ 20000. In short, if a potential participant must pay a fee to enter the charred market
and have reason to believe the company will respond to entry by lowering their prices, he will
find profitable to enter despite high prices. The end result is that with the sinking fees,
established may not be disciplined by the potential in, and higher prices may apply. chapters 10
and 13 provide more detailed coverage of strategic interaction between the old players and
potential entrants.

SUMMARY
In this chapter, we tested several models of the market consists of a small number of
strategic interdependence. This model helps explain some of the possible types of behaviour
when the market is characterized by the build oligopoly. Now you should be familiar with
Sweezy, Cournot, Stackelberg model, and Bertrand.
In the Cournot model, the company chose the quantity on the basis of its competitors
given the level of output. Each company gain some economic benefits. Competitors Bertrand, on
the contrary, the price set considering the price of their rivals. They end up charging the price
the marginal cost is equal to their economic benefit and zero-Sweezy. build oligopoly believe
their competitors will follow the price drop but will ignore price increases, which leads to a very
stable prices even when the cost of change in the industry. Finally, Stackelberg build oligopoly
has followers and leaders. Leaders know how followers will behave, and followers just
maximize profits given what the leader has chosen. This causes the profit for each company, but
the profits are much higher for a leader than follower.
The next chapter will explain in more detail how managers go about achieving balance in
build oligopoly. For the moment, it should be clear that your decision will affect others in your
market and their decisions will affect you too.

BIBLIOGRAPHY

Baye, Michael r. (2010). Production management, Economics and Business Strategy. New York:
McGraw Hill.
Original
Output QM 1 menunjukkan bahwa perusahaan 1 menjadi monopoli.