Oligopoly

Chapter 14

Prepared and Presented by:

Team M.I.

2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

Market Structure
identifies how a market is made up in terms of:
the number of firms in the industry
the degree of power/influence of the firms
involved
the extent of barriers to entry (playing field)
the nature of the product produced
firms behaviour pricing strategies, non-price
competition, output levels

2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

oying, cody, lester, paolo, dennis, dondon, ramon,

Market Structure
Monopolistic Competition

Oligopoly

Duopoly Monopoly

diane, tonypet, nette

Perfect
Competition

FIRMS/
SELLERS

PERFECT
MONOPOLISTIC OLIGOPOLY MONOPOLY
COMPETITION COMPETITION
Large number

TEAM M.I.

PRODUCT Identical
ENTRY &
MARKET
POWER

Pure
Monopoly

Easy entry/exit
No market
power

Large number

Small
number

One

Differentiated
(toothbrush)

Identical or
Unique
differentiated

Easy entry/exit
Small amount of
power

Difficult
entry, Large
amount of
market
power

Almost
Impossible
entry
Complete
market power

2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

Oligopoly
Greek word olig/oligo = few (Philippine setting)
Competition between the few
may be a large number of firms in the industry
but the industry is dominated by a small
number of very large producers
Products may be homogenous or differentiated
(telecoms / music)
The behavior of any one firm in an oligopoly
depends to a great extent on the behavior of
others.(cooperation vs. self-interest)
2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

Potential for collusion

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

Features of Oligopoly

Price may be relatively stable across the

industry
Behaviour of firms affected by what they
believe their rivals might do
interdependence of firms
Branding and brand loyalty may be a
potent source of competitive advantage
2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

diane, tonypet, nette

One thing in common:

The behavior of any given oligopolistic firm depends on the behavior
of the other firms in the industry comprising the oligopoly.

A number of different oligopoly models have

been developed to describe the behavior of firms.

TEAM M.I.

oying, cody, lester, paolo, dennis, dondon, ramon,

Oligopoly Models

2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

Market Structure Models

representation of reality to help us to

understand what may be happening in
real life

enable us to draw comparisons and

contrasts with what is observed
in reality

offer a benchmark - help analysing

and evaluating
2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

 Kinked Demand Curve Theory

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

Models of Oligopoly

Price Leadership
Collusion
Cournot

2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

 used as a comparison not necessarily reality

Regulation or the threat of regulation may well
affect the way a firm behaves.

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

Models Some Reminders

based on certain assumptions in the real

world some may not be valid
some extremes to the model that are unlikely to
occur in reality
2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

Models of Oligopoly

Kinked Demand Curve Theory

Price Leadership
Collusion
Cournot

OTHER COMPETITION STRATEGIES:

Game Theory
Non-Price Competition

2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster

diane, tonypet, nette

oying, cody, lester, paolo, dennis, dondon, ramon,

TEAM M.I.

A Special ASOG-MPM Section:

The Role of Government in

OLIGOPOLISTIC
Market Structures
2009 Pearson Publishing Principles of Economics 9 th edition by Case, Fair and Oster