Microeconomics for Dummies (UK Edition) by Peter Antonioni & Manzur Rashid

Author:Peter Antonioni & Manzur Rashid
Language: eng
Format: epub, mobi
ISBN: 9781119026716
Publisher: Wiley
Published: 2015-10-16T00:00:00+00:00

Outlining the Features of an Oligopoly

The huge difference between the model of an oligopoly and the model of a perfectly competitive market is that firms carry out strategic interactions with each other, which means that they form beliefs about what their rivals might do in response to their acts. This behaviour makes oligopoly a useful jumping-off point for looking at even more complex markets, and for discovering the concepts of game theory, which economists use extensively when the models get really difficult. (We cover game theory in Part V.)

The first thing you have to do when looking at oligopoly is to describe the key characteristics that make a given market an oligopoly. In addition to it having only a few firms in the market, here are some more features to be aware of:

Entry into and exit from the market isn’t costless: The demand curve is downward sloping rather than a flat line (as for perfect competition: check out Chapter 10).

Firms, as ever, are rational profit maximisers: They set prices or quantities to make marginal revenue equal marginal cost (see Chapter 3).

Firms interact by making guesses about how their rivals will react to their decisions: These guesses about their rivals’ behaviours determine the price that a firm will charge or the quantity they’ll supply.

Prices tend to be ‘sticky’ in response to firm and consumer decisions: Firms in an oligopoly don’t tend to change prices as much as people guess and so oligopoly models look for a way of taking this tendency into account.

Consumers are rational utility maximisers: Therefore, demand works in the same way as in Chapter 9.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.