ECO204 Principles of Microeconomics
Hugo A. Villegas
September 27, 2010
For each of the following, state whether you agree or disagree. Explain your reasoning.
a. Oligopolies are always bad for society.
b. The beer industry has a few large firms and many small firms. Therefore, we would not call it an oligopoly. Part a.
It is careless to generalize about any system particularly oligopolies. While by definition oligopolies look like restrictive systems,“ An oligopoly is an industry dominated by a few firms that, by virtue of their individual sizes, are large enough to influence market price. The behavior of a single oligopolistic firm depends on the reactions it expects of all the other firms in the industry. Industrial strategies usually are very complicated and difficult to generalize about.”(Case, Fair, & Oster page 284) Economists are very much divided as to how good or bad they are for society in general.
In general without some kind of illegal dealings amongst competitors, it is difficult if not impossible to control the marketplace entirely. One business cannot gamble on what they think their competitors might do with any accuracy. Firms are often both buyers and sellers in the marketplace and are faced with the same competition for inputs as are others. It can also be said that larger firms have more resources for innovation and fear of competition fuels this activity.
So, are oligopolies always bad for society? I would have to say no, there are of course cases that are bad but not always. Part b.
Again by definition as cited earlier the beer industry is an oligopoly. (Case,Fair page 285)
The chart above shows that breweries are dominated by four large firms with 90% of the market. The existence of many other firms in the industry is not really that relevant to the question.
Case, K. E., Fair, R. C., & Oster, S. E. (2009). Principles of microeconomics (9th ed.)....