chp 17

Chapter 17 discusses an in between when it comes to monopolies and perfect competition which is referred to as imperfect competition. Firms in this in-between have competitors but at the same time do not face so much competition so as to be price-takers. The particular type of firm examined is the Oligopoly. An oligopoly is a market structure in which only a few sellers offer similar or identical products. The actions of any one seller in the market can have a large impact on the profits of all the other sellers. Economist measure a markets domination by a small number of firms with a statistic called the concentration ratio, which is the percentage of total output in the market supplied by the four-largest firms. A key feature of Oligopoly  is the tension between cooperation and self-interest. Sometimes a collusion may occure in an oligopoly which is an agreement among firms in a market about quantities to produce or prices to charge. A group of firms acting in unison is referred to as a cartel. Often times Anti-trust laws prohibit explicit agreements among oligopolies. A Nash equilibrium is a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen. Oligopolies would be better off cooperating and reafching the monopoly outcome yet because they pursue their own self-interest, they do not end up reaching the monopoly outcome and maximizing their joint profit. When firms in an oligopoly individually choose production to maximize profit, they produce a quantity of output greater than the level produced by monopoly and less than the level produced by competition. The oligopoly price is less than the monopoly price but greater than the competitive price.