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Chapter 26 Oligopoly
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Editors Notes:  A. Part II Product and Factor Markets should be read as an introduction to this chapter, especially by those using
                             
 McConnell Economics Books or involved with Test Prep, CLEP, or AP Economics projects.
                          B. Our Current Events Internet Library has an interesting economics section.


I. Introduction
     A. An oligopoly market exists when barriers to entry result in a few mutually dependent companies controlling a 
          substantial portion of a market. 
          1. Products may be homogeneous or
differentiated.
          2. Examples include many industrial products such as
steel and large consumer durables such as appliances. 
          3. Automobile, steel, and other oligopolistic industries lost monopoly power because of the foreign invasion
              beginning in the 1970's.
              a. Eventually American companies became more competitive.
              b. The price was lower real wages for manufacturing workers.
          4. Concentration ration measure the amount of total output controlled by a few firms.
               a.
eight-firm concentration ratio - AmosWEB is Economics ...
               b. four-firm concentration ratio
provides examples of possible oligopoly industries and companies.
           5. Wikipedia provides the following on high concentration industries
               a. Six movie studios receive 90% of American film revenues.
               b. The television industry is mostly an oligopoly of five companies: Disney/ABC, CBS Corporation, NBC Universal, Time Warner, and
                   News Corporation.[37] See Concentration of media ownership.
               c Four major music companies receive 80% of recording revenues.
               d. Four wireless providers control 89% of the cellular telephone market.[38]
                   
e. There are just six major book publishers.
               f. Healthcare insurance in the United States consists of very few insurance companies controlling major market share in most states.
                  For example, Calfornia's insured population of 20 million is the most competitive in the nation and 44% of that market is dominated
                  by two insurance companies, Anthem and Kaiser Permanante. [39]
                  
g. Anheuser-Busch and MillerCoors control about 80% of the beer industry.[40]
     B Three well-defined pricing models exist
         1. Kinked demand
         2. Collusive pricing
         3. Price leadership

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 II. Kinked demand
      A. Describes a situation where a strong interdependency exists among firms within an industry
      B. A firm's demand curve tends to be elastic above equilibrium price as price increases are not followed by competitors.
           If they do
follow, industry supply has changed.
      C. A firm's demand curve tends to be inelastic below equilibrium price as price decreases must be followed by competing firms. 
           If competitors do not follow, a monopoly situation could be developing.
 
      D. This interdependency of pricing is studied with game theory models where participants react to possible pricing situations
           in a similar manner to the strategy of people playing chess or poker.
     
E.
Econ Concepts in 60 Seconds: Kinked Demand Curve
      F. Kinked demand curve theory from youtube
     G.
Need more, try Kinked Demand from Amos Web.

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     F. Profit model G. Collusive pricing is when a  formal agreement (cartel) or informal agreement among competitors to restrict supply and benefit from the resulting high price (OPEC).

III. Price leadership
     
  A. One firm, usually dominant in size, sets price and others follow.
         B.
The automobile industry with General Motors as the price leader was an example until foreign competition 
              made the industry monopolistically competitive. Now the automobile industry is so competitive it is 
         approaching the purely competitive model.
       C. Intel Corporation has tried with limited success to be a price leader in the computer chip industry.

 IV. Restrictive vs. progressive oligopolies
     A. Restrictive oligopolies
          1. A few companies share a market creating a near monopoly situation.
          2. Example: Rust Belt industries in the United States before foreign competition.
      B. Progressive oligopolies
          1. Technology lowers cost and improves product quality.
          2. Companies must maintain technological base to survive.
          3. Low consumer prices, high product quality, and monopoly profits exist simultaneously. 
          4. As long as new product development causes growth in consumer demand, funds are provided for R & D and
              capital investment requirements.
          5. Examples include computer software and high-tech consumer electronics.

 V. Economic analysis of oligopoly
      A. Restrictive oligopolies tend to be very monopolistic in nature with
           1. P > MR = MC
           2. Production is not at the lowest point indicated by the ATC curve.
           3. Economic profits exist and quantity is restricted.
      B. Progressive oligopolies have high economic profits in spite of price decreases brought on by high-tech efficiencies.

VI. Desoligopolization is the disappearance of an oligopoly. (Material from Wikipedia)
       A. Oligopoly Watch
       B.
 Read POWER ELITES IN AMERICA: OLIGOPOLY AND POLITICAL PULL
               (OR, BEWARE THE REGULATORY-INDUSTRIAL COMPLEX),
By Sam Wells
                for a conservative view for Monopoly development from Human Freedom and the Laissez-Faire Republic

VII. Oligopoly theory makes heavy use of game theory to model the behavior of oligopolies:

       A. Econ Concepts in 60 Seconds Video on Oligopolies and Game Theory
       B. Advanced materials from Wikipedia

 view  Topics in game theory
Definitions Normal form game · Extensive form game · Cooperative game · Information set · Preference
Equilibrium concepts Nash equilibrium · Subgame perfection · Bayes-Nash · Trembling hand · Correlated equilibrium · Sequential equilibrium · Quasi-perfect equilibrium · Evolutionarily stable strategy
Strategies Dominant strategies · Mixed strategy · Grim trigger · Tit for tat
Classes of games Symmetric game · Perfect information · Dynamic game · Repeated game · Signaling game · Cheap talk · Zero-sum game · Mechanism design
Games Prisoner's dilemma · Coordination game · Chicken · Battle of the sexes · Stag hunt · Matching pennies · Ultimatum game · Minority game · Rock, Paper, Scissors · Pirate game · Dictator game · Public goods game
Theorems Minimax theorem · Purification theorems · Folk theorem · Revelation principle · Arrow's Theorem
Related topics Mathematics · Economics · Behavioral economics · Evolutionary game theory · Population genetics · Behavioral ecology · Adaptive dynamics · List of game theorists

Read POWER ELITES & MONOPOLY POWER for a conservative view of monopoly power.
Interestingly, I couldn't find much pro antitrust material. Reason-our competitive world.

Based on this 50 minute video, is our political system a monopoly, oligopoly, or purely competitive?
Listen to
The Limits of Power
Bill Moyers sits down with history and international relations expert and former US Army Colonel Andrew J. Bacevich who identifies three major problems facing our democracy: the crises of economy, government and militarism, and calls for a redefinition of the American way of life.

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