Game Theory and Oligopoly Fall
Econ 101: Principles of Microeconomics
Chapter 15 - Oligopoly
Fall 2010
Herriges (ISU)
Ch. 15 Oligopoly
Fall 2010
1 / 25
Outline
1
Understanding Oligopolies
2
Game Theory The Prisoner’s Dilemma Overcoming the Prisoner’s Dilemma
3
Antitrust Policy
Herriges (ISU)
Ch. 15 Oligopoly
Fall 2010
2 / 25
The Oligopoly
Monopolies are quiet rare, in part due to regulatory efforts to discourage them. However, there are many markets that are dominated by a relatively few firms, known as oligopolies. The term oligopoly comes from two Greek words: oligoi meaning “few” and poleein meaning “to sell”. Examples of oligopolies include:
1 2 3 4
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6 7
Airliner Manufacturing: Boeing and Airbus Food Processing: Kraft Food, PepsiCo and Nestle US Beer Production: Anheuser-Busch and MillerCoors US Film Industry: Disney, Paramount, Warners, Columbia, 20th Century Fox and Universal US Music Industry: Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI Group Academic Publishing: Elsevier, Kluwer US Airline Industry: Delta/NWA, United, American
Ch. 15 Oligopoly Fall 2010 3 / 25
Herriges (ISU)
The Problem With Oligopolies
The problem with oligopolies is much that same as with monopolies–the firms realized they have some market power because relatively few firms provide the good or service. Oligopolies still compete– it’s just that the competition is not always as rigorous. The situation in which both competition occurs and firms exercise market power is known as imperfect competition The market power of the oligopoly will typically result in higher prices and lower production levels in the market than would be efficient However, the competition among firms, and particularly their incentives to cheat on each other, will dampen this effect relative to a monopoly. Oligopolies are a very difficult type of market structure to study, relative to either perfect competition or a monopoly.
Herriges (ISU) Ch. 15 Oligopoly
Chapter 15 - Oligopoly
Fall 2010
Herriges (ISU)
Ch. 15 Oligopoly
Fall 2010
1 / 25
Outline
1
Understanding Oligopolies
2
Game Theory The Prisoner’s Dilemma Overcoming the Prisoner’s Dilemma
3
Antitrust Policy
Herriges (ISU)
Ch. 15 Oligopoly
Fall 2010
2 / 25
The Oligopoly
Monopolies are quiet rare, in part due to regulatory efforts to discourage them. However, there are many markets that are dominated by a relatively few firms, known as oligopolies. The term oligopoly comes from two Greek words: oligoi meaning “few” and poleein meaning “to sell”. Examples of oligopolies include:
1 2 3 4
5
6 7
Airliner Manufacturing: Boeing and Airbus Food Processing: Kraft Food, PepsiCo and Nestle US Beer Production: Anheuser-Busch and MillerCoors US Film Industry: Disney, Paramount, Warners, Columbia, 20th Century Fox and Universal US Music Industry: Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI Group Academic Publishing: Elsevier, Kluwer US Airline Industry: Delta/NWA, United, American
Ch. 15 Oligopoly Fall 2010 3 / 25
Herriges (ISU)
The Problem With Oligopolies
The problem with oligopolies is much that same as with monopolies–the firms realized they have some market power because relatively few firms provide the good or service. Oligopolies still compete– it’s just that the competition is not always as rigorous. The situation in which both competition occurs and firms exercise market power is known as imperfect competition The market power of the oligopoly will typically result in higher prices and lower production levels in the market than would be efficient However, the competition among firms, and particularly their incentives to cheat on each other, will dampen this effect relative to a monopoly. Oligopolies are a very difficult type of market structure to study, relative to either perfect competition or a monopoly.
Herriges (ISU) Ch. 15 Oligopoly