01:220:102 Lecture Notes - Lecture 19: Oligopoly, Marginal Cost, Product Differentiation

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Published on 8 Nov 2018
ECON 102 - Lecture 19
Implications of Entry Barriers
Monopolies are not permanently protected from forces of entry and imitation
The main difference between a competitive firm and a monopoly is the length of time
that a firm can earn above average profits
Monopolists can earn positive profits in the long run
Barriers to entry: can maintain positive long run profits
Firms will price at the point where (P-MC)/P = 1/e
In the long run the forces of entry and imitation (the development of close substitutes)
make the monopolists curve more elastic
The elastic demand will push price down toward marginal cost and will eventually drive
economic profits to zero
Chapter 14 Oligopoly
Oligopoly (A few large firms): Key Conditions
A few large firms with a high level of output
Oligopoly market structures are characterized by only a few firms, each of which is large
relative to the total industry
Typical number of firms is between 2 and 10
Products can be identical or differentiated
An oligopoly market composed of two firms is called a duopoly
Oligopoly settings tend to be the most difficult to manage since managers must consider
the likely impact of his or her decisions on the decisions of other firms in the market
Limited control over price
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