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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.
F. Kinked demand curve theory from youtube
G. Need more, try Kinked Demand from Amos Web.
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