Chapter 26 Oligopoly

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Editors Notes
Part II Product and Factor Markets introduces these markets
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 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 ...
. 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.[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.
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. [39]
g. Anheuser-Busch and Miller Coors control about 80% of the beer industry.[40]
B Three well-defined pricing models exist
       1. Kinked demand  

       2. Collusive pricing
       3. Price leadership
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.
Econ Concepts in 60 Seconds: Kinked Demand Curve
Kinked demand curve theory from You Tube
Need more, try Kinked Demand from Amos Web.
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
exist simultaneously. 
          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).

See trustbusters have got better detecting cartels and bolder punishing them incentives 3/29/14
       Inequality and the monopolies of unfettered techno markets

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 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
By Sam Wells
                for a conservative view for Monopoly development from Human Freedom and the Laissez-Faire Republic
VII. Additional Materials
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

VIII. Game theory is used by oligopolies to model their behavior.
       A. Econ Concepts in 60 Seconds Video on Oligopolies and Game Theory  and
Dominate Strategy
       B. Examples 
           1. The Prisoners Dilemma #1      
Prisoner's Dilemma Game from Bryn Mawr College
Game Theory The Meeting Game
           3. Goldon Bollocks is a You Tube game theory game.
           4. A Money Gane

           5. Master the Rules of Competitive Behavior! Order "Games People Play", on DVD!
               is a course on Game Theory used by
dependent companies controlling a
               substantial portion of a market. 

Practice Quizzes

amosweb practice test by specific topic. Oligopoly, answers provided.

Monopolistic Competition and Oligopoly multiple choice practice questions, no answers provided

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Advanced Game Theory Materials from 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
Last Chapter  cover

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