ECON-101 Lecture Notes - Lecture 17: Monopoly Profit, Economic Equilibrium, Oligopoly
18 Mar 2016
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Markets with only a few sellers: because an oligopolistic market has only a small group of sellers, a key feature of oligopoly is the tension between cooperation and self-interest. A duopoly example: to understand the behavior of oligopolies, let"s consider an oligopoly with only two members, called a duopoly. Collusion: an agreement among firms in a market about quantities to produce or prices to charge. Cartel: a group of firms acting in unison. Let"s consider what happens if jack and jill decide separately how much water to produce. Suppose now that jill increases her production to 50 l: a total of 90 l of water would be sold, and the price would be per litre, her profit is now . She is better off keeping my production at 40 l. As we have seen, oligopolies would like to reach the monopoly outcome, but doing so requires cooperation, which at times is difficult to maintain.
