Chapter 26 Oligopoly

I.     Oligopoly Defines
II.     Kinked demand
III.   Collusive pricing (OPEC)
IV.   Price Leadership 

V.    Economic analysis of oligopoly
VI    Restrictive vs. progressive oligopolies

VII.  Readings, Audios, Videos
VIII. Game Theory
Editor's Notes: Part II Product and Factor Markets introduces these markets

I. Oligopoly Defines
    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 consumer goods like soda. 
         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 ratios measure the amount of total output controlled by a few firms.
             a. eight-firm concentration ratio - Amosweb is Economics ..
             b. four-firm concentration ratio -Amosweb
         5. Readings
             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
            c. NBC Universal Time Warner and News Corporation
See Concentration of media ownership .
              d. Four major music companies receive 80% of recording revenues.
              e. Four wireless providers control 89% of the cellular telephone market.

f. There are just six major book publishers.
              g. 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.
 h. Anheuser-Busch and Miller Coors control about 80% of the beer industry.   
Three well-defined pricing models exist
              1. Kinked demand  

              2. Collusive pricing
              3. Price leadership 
Unit I. Review
Barriers to entry allow a few a firms producing homogeneous or
heterogeneous products with to some control price and quantity.


Image result for OLigopoly Cartoons

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 players
          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.
 Unit II. Review Interdependency of firms results in demand that is elastic at high prices and inelastic at low prices


III. Collusive pricing (OPEC).
A. A formal agreement (cartel) or informal agreement among competitors to strict supply        
           and benefit from the resulting high price 
B. See trustbusters have got better detecting cartels and bolder punishing them incentives
C. Inequality and the monopolies of unfettered techno markets
      D. Teddy Roosevelt takes on the trusts

Unit III. Review  A formal agreement to manipulate price to maximize profit

 IV. Price Leadership
        A. A major player leads the way and others follow GM was a price leader
            until foreign competition made their market share too small to lead
        B. See
Price- Leadership Under Oligopoly
Unit IV. Review
A major player leads the way and others follow

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Free Books from When Oligopolies Ruled the Economy

How the Other Half Lives 1890's tenement life
Gilded Age The Mark Twain’s book on a wealthy society 
Jungle, The Upton Sinclair
Knowledge in Society, The Use of Friedrich Hayek leads traditionalist liberalists
Leviathan Thomas Hobbs begins social contract discussions
Muckrakers and their works
Octopus, The
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 V. Economic analysis of oligopoly
A. Restrictive oligopolies tend to be very monopolistic in nature with
           1. P >
           2. Production is not at the lowest point indicated by the AT 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.

Unit V. Review Price higher than lowest point on ATC


VI 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
           6. Once dominant software giant determined to prove life begins again at 40    4/4/15 
Unit VI. Review Technology allows for both high profits and low price

Image result for OLigopoly Cartoons

VII. Readings
Oligopoly Watch
             for a conservative view for Monopoly development from Human Freedom and
             the Laissez-Faire Republic
King On Knowledge, Power and Unchecked and Unbalances -  Audio
      D. Big banks are operating as an 'oligopoly Video
    E. POWER ELITES & MONOPOLY POWER for a conservative view of monopoly power.  
          Interestingly, I couldn't find   much pro antitrust material. Reason-our competitive world.
   F. 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.

   G. Planned Obsolescence Disguised as Innovation, Oligopoly Disguised as a Free Market, and the Enrichment of Oligarchs
Robber Barons Who Built America

VIII. Game theory is used by oligopolies to model their behavior.
       A. Econ Concepts in 60 Seconds Video on Oligopolies and Game Theory 
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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 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
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