MGCR 293 Lecture Notes - Lecture 17: Tacit Collusion, Best Response, Oligopoly
15 Nov 2016
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Document Summary
An oligopoly is a form of industry (market) structure characterized by a few dominant firms. The actions of one firm affect the profits of other firms. Strategic action (flooding the market and controlling an essential input) Economist use concentration ratios to measure the degree of concentration in a market. A four-firm concentration ratio is the percentage of the market output produced by the 4 largest firms. Examples of highly concentrated industries: primary copper, laundry equipment, cigarettes. Best off co-operating and acting like a monopolist by producing a small quantity of output and charging price above marginal cost incentive to collude. Advantages of collusion to the firms include. A duopoly is an oligopoly with only two members. No single, unified model of oligopoly exists. A group of firms that gets together and makes price and output decisions jointly is called a cartel. Collusion occurs when price- and quantity- fixing agreements are explicit.
