ECON 101 Lecture 20: Chapter 16: Oligopolies and Strategic Behavior
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Chapter 16: how firms behave when they have market power: oligopolies and strategic. Oligopoly a market structure in which there are a small number of sellers: each firm is an oligopolist, barriers to entry for new firms. Imperfectly competitive markets firms compete, but at least some of them possess enough market power to influence the price of their products. Four firm concentration ratio: if four firms make up at least 40% of the market, they are considered an oligopoly. Likely to adjust pricing decisions in response to reactions of others: oligopolists might undercut each other"s prices until both are selling at the same low price. Result would be same as competitive market: oligopolists might set a common price and quantity. Kinked demand curve the demand curve is kinked at its current price: demand is very elastic among the current price. No one will follow for fear of losses: demand is very inelastic below the current price.