Chapter 26 Oligopoly
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A. Part II Product and Factor Markets introduces these markets
B. Our Current Events Internet Library has an interesting economics section.
A. An oligopoly market exists when barriers to entry result in a few producers.
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, game consoles 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.
c. The oligopolistic nature of the video game consol market
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 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. 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.
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, California'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. 
g. Anheuser-Busch and Miller Coors control about 80% of the beer industry.
B Three well-defined pricing models exist
1. Kinked demand
2. Collusive pricing
3. Price leadership
C. In praise of oligopoly
| 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
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 You Tube
G. Need more, try Kinked Demand from Amos Web.
H. H. Profit model
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
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
4. As long as new product development causes growth in consumer
demand, funds are provided for R & D and capital investment
5. Examples include computer software and high-tech consumer
6. Once dominant software giant determined to prove life begins again at 40 4/4/15
| I. Collusive pricing
is when a formal agreement (cartel)
or informal agreement among competitors to
restrict supply and benefit from the resulting high price (OPEC).
Free Political Science Book
V. Economic analysis of oligopoly
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
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. Additional Materials
A. King On Knowledge, Power and Unchecked and Unbalances - Audio
B. Big banks are operating as an 'oligopoly' Video in England's problem with the U.S. in the same situation
C. 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.
D. Class Discussion Question: Based on this 50 minute video, is our political system a monopoly,
oligopoly, or purely competitive?
E. 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.
F. Planned Obsolescence Disguised as Innovation, Oligopoly Disguised as a Free Market, and the Enrichment of Oligarchs
G. Robber Barons Who Bulilt America
is used by oligopolies
to model their behavior.
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Advanced Game Theory Materials from materials from Wikipedia
|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|
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|Chapter 26 Class Discussion Questions|
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