Chapter+16+OLIGOPOLY+Kelsey

OLIGOPOLY

=== **Oligopoly **: A MARKET WHERE THERE IS only a few sellers - SELLING PRODUCTS THAT ARE PRETTY MUCH THE SAME BUT ALSO DIFFERENT IN SAME WAYS. ===


  === **Monopolistic competition  :** A LOT OF firms selling products that are pretty much the same but also different in some ways. ===


 * Since oligopoly market has only a small group of sellers, the tension among these companies is pretty intense. Thus, lets take deep look inside two oligopolies companies. Oligopoly that has only two members are called: DUOPOLY

Picture: http://www.swcollege.com/bef/cebula/images/F02_movie.gif

DUOPOLY

The graph above shows that the maximum possible profit is: 3600 Thus, each company can produce 30L each to each profit in this business. However one company can get greedy and say: "I can produce 40 gallons. In this case, a total of 70 gallons of water would be sold at a price of $50. My profit would be $2000. Even though total profit in the market would fall, my profit would be higher because I would have a larger share of the market."

One thing important to know about oligopoly firm maximizes their total profit by forming a CARTEL and acting like a monoploist.

THIS BEHAVIOR OF COMPANIES SHOWS THE CONCEPT OF: NASH EQUILIBRIUM (a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen) THIS BEHAVIOUR OF NEGOTION AND MAKING AGREEMENT is called **collusion**, and the group/ couple of firms acting in unison is called a **CARTEL**.  T**HE LARGER THE # of FIRMS IN THE OLIGOPOLY, the CLOSER THE # and PRICE WILL BE TO THE LEVELS THAT WOULD PREVAIL UNDER COMPETITION.**


 * //Economics is much like a game in which the players anticipate one another's moves.//**

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Other examples can also be referred to ARMS RACES, COMMON RESOURCES.  X: Clyde's decision Y: Bonnie's decision** Clyde gets 8 years || Bonnie gets 20 years Clyde goes free || Clyde gets 20 years || Bonnie gets 1 year Clyde gets 1 year ||
 * Game theory** is the study of how people behave in strategic situations. This may be applied in situations in which decision makers must take into account the reasoning of other decision makers. A **prisoners dilemma** perfectly illustrates why cooperation is difficult to maintain even when it is mutually beneficial.======
 * __TAKE A LOOK AT THIS GRAPH BELOW!__
 * || **Confess** || **Remain silent** ||
 * **Confess** || Bonnie gets 8 years
 * **Remain Silent** || Bonnie goes free

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THUS, __POLICYMAKERS__ use the //**antitrust laws**// to prevent oligopolies form engaging in behavior that reduces competition. However, the application of these laws is questionable because reducing competition may inhibit legitimate business purposes.======

**Conclusion**
-Oligopolies would like to act like monopolies -example of prisoners dilemma shows why oligopolies can fail to maintain cooperation, even when cooperation is in their best interest. -Policymakers regulate the behavior of oligopolists through antitrust laws

media type="youtube" key="Eb7xkST7HL4" width="425" height="350"

media type="youtube" key="bmXe4aMfRcI" width="425" height="350" a cool political view of DUOPOLY. WATCH (:

1. Why do you think people sometimes cooperate? 2. What kinds of behavior do the antitrust laws prohibit?
 * Questions**

1. When two firms make their initial agreement to keep production low, they can also specify what happens if one reneges. They might agree that once one of them reneges and produces 40Ls, both will end up producing 40Ls forever after. Thus, this penalty will easily inhibit companies from cheating in the game. 2. It prohibits price-fixing, allocating territories, boycotts, or any other kind of conspiratorial or monopolistic behavior between companies that unfairly restrain free trade.
 * Answers**

-http://tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm -http://moneyterms.co.uk/oligopoly/
 * Extra Citations**