(BQ) Part 2 book "Price theory & Applications" has contents: Market power, collusion, and oligopoly; the theory of games, external costs and benefits; common property and public goods; the demand for factors of production; the market for labor; allocating goods over time,.and other contents. | CHAPTER 11 Market Power, Collusion, and Oligopoly Market power is an elusive goal. It is limited everywhere by the threat of entry. Even a firm producing a unique product with no close substitutes might not be able to engage in monopoly pricing, because the profits that it would earn by doing so would lure entrants and destroy its market position. But market power can be highly profitable to those who achieve it, and is therefore avidly pursued. In this chapter, we will look first at some of the strategies that firms employ in their quest for a monopoly position. These can include mergers, predatory pricing, and fair trade agreements. We will examine each strategy and each strategy’s limits. We will also see that activities that appear to be attempts either to gain or to exploit monopoly power are not always what they seem. Collusion among existing firms is one of the most straightforward and common methods of trying to monopolize a market. It is important enough that we devote an entire section to it, Section . Using tools from the theory of games, we will see why collusion is often doomed to fail. We will then see that a collusive arrangement among firms that would ordinarily collapse under its own weight can at times be supported by various forms of regulation. This discussion occupies Section . Although regulation sometimes plays this role, it also plays a variety of others, and there are a great number of theories of the regulatory process. We will survey a few ideas from this large body of thought. Finally, we will turn from the pursuit of market power to its exercise. We already have (from Chapter 10) a simple model of monopoly behavior, which ignores the firm’s need to respond to other firms’ actions. In Section , we will survey some theories of oligopoly that provide a starting point for thinking about industries with small numbers of firms, each enjoying some monopoly power but each affected by the others’ behavior. .
