Lecture notes 4.1.3 Oligopoly

4.1.3 Oligopoly

 A market characterized by a small number of firms who realize they are interdependent in their
pricing and output policies
 Firms can operate in an oligopolistic market
 Market that has oligopolistic behaviour
o Independent firms with stable prices collude
 Concentration Ratios
o Combined MarketShare of top few firms in market
o The higher the concentration ratio the less competitive the market
 Competition In oligopoly
o Collusive behaviour
 Firms agree to work together on something
 Set a price or fix the quantity of output they produce
 Collusion leads to lower consumer surplus higher prices and greater profits
 Allows oligopolist to act as monopolist
 Strong incentives to collude
 Maximise their business potential
 Deter new entrants
o Non-collusive behaviour
 Firms compete to establish a competitive oligopoly
