The objectives of this chapter are to introduce oligopoly. The following will be discussed in this chapter: Concentration Ratios, the Herfindahl-Hirschman index, the competitive spectrum, the kinked demand curve, administered prices. | Chapter 25 Oligopoly 25-1 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Concentration Ratios The Herfindahl-Hirschman index The competitive spectrum The kinked demand curve Administered prices 25-2 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly Defined An oligopoly is an industry with just a few sellers How few? So few that at least one firm is large enough to influence price 25-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly is the prevalent type of industrial competition in the United States as well as in most of the noncommunist industrial west In terms of production, the vast majority of our GDP is accounted for by firms in oligopolistic industries 25-4 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly The crucial factor under oligopoly is the small number of firms Because there are so few firms, every competitor must think continually about the actions of its rivals What each does could make or break the others Thus, there is a kind of interdependance among oligopolists 25-5 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly When we talk about big business in the United States,we’re talking about oligopolies. Some examples are GM, Ford, ExxonMobil, IBM, Boeing, CBS, NBC, Kellog, and General Mills We can also include all the other industrial giants that have become household names 25-6 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly The graph of the oligopolist is similar to that of the monopolist The oligopolist is analyzed in the same manner as the monopolist with respect to price, output, profit, and efficiency Price is higher than the minimum point of the ATC curve, therefore the oligopolist is not as efficient as the perfect competitor The oligopolist has a higher price and a lower output than does the perfect competitor The oligopolist, like the | Chapter 25 Oligopoly 25-1 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Concentration Ratios The Herfindahl-Hirschman index The competitive spectrum The kinked demand curve Administered prices 25-2 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly Defined An oligopoly is an industry with just a few sellers How few? So few that at least one firm is large enough to influence price 25-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly is the prevalent type of industrial competition in the United States as well as in most of the noncommunist industrial west In terms of production, the vast majority of our GDP is accounted for by firms in oligopolistic industries 25-4 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Oligopoly The crucial factor under oligopoly is the small number of firms Because there are so few firms, every competitor must think continually
