Oligopoly Oligopoly •Oligopoly A market structure

					     Oligopoly
•Oligopoly A market
structure in which a small
number of interdependent
firms compete.

•The approach we use to
analyze competition among
oligopolists is called game
theory.
1 LEARNING OBJECTIVE
     Oligopoly and Barriers to
                     Entry
     • Barriers to Entry
                                        Barrier to entry Anything that keeps
                13 - 1                  new firms from entering an industry in
      Examples of Oligopolies in        which firms are earning economic profits.
      Retail Trade and Manufacturing

                   RETAIL TRADE                              MANUFACTURING
            INDUSTRY             FOUR-FIRM            INDUSTRY         FOUR-FIRM
                                 CONCENTRATIO                          CONCENTRATIO
                                 N RATIO                               N RATIO
      Warehouse Clubs and         90%             Cigarettes           99%
      Superstores
      Discount Department         88%             Beer                 90%
      Stores
      Hobby, Toy, and Game        70%             Aircraft             85%
      Stores
      Radio, Television, and      62%             Breakfast Cereal     83%
      Other Electronic Stores
      Athletic Footwear Stores    62%             Automobiles          80%
      College Bookstores          58%             Dog and Cat Food     58%
Oligopoly and Barriers to
                Entry
• Barriers to Entry
            13 - 1           Economies of scale Economies of
Economies of Scale Help      scale exist when a firm’s long-run
Determine the Extent of      average costs fall as it increases
Competition in an Industry   output.
Oligopoly and Barriers to
                Entry
• Barriers to Entry

  In addition to economies of scale,
  other barriers to entry include:

   • Ownership of a key input

   • Government–Imposed Barriers

      • Patent The exclusive right to a product
        for a period of 20 years from the date the
        product was invented.
2 LEARNING OBJECTIVE
        Using Game Theory to
         Analyze Oligopoly
           Game theory The study of how people make decisions in
              situations where attaining their goals depends on their
              interactions with others; in economics, the study of the
              decisions of firms in industries where the profits of
              each firm depend on its interactions with other firms.

           Key characteristics of all games:
              1. Rules that determine what actions are allowable.
              2. Strategies that players employ to attain their
                  objectives in the game.
              3. Payoffs that are the results of the interaction among
                  the players’ strategies.

           Business strategy Actions taken by a business firm to
              achieve a goal, such as maximizing profits.

				
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posted:9/30/2011
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