Chapter+16+JK+&+JJ

=__**Oligopoly**__=

=Monopoly vs Perfect Competition= Two types of imperfectly competitive markets =Markets with only a few Sellers= __competition, monopolies, and Cartels__ As an example we will be using an Oligopoly with only two firms which sell that product. Usually the best way for an Oligopoly maintain itself is to create a cartel with another firm. It will then make an agreement between the firms in a market about quantities to produce or prices to change(aka collisions). Usually in a Oligopoly, when decisions are made by individual firms, they will tend to make things go to equilibrium. It's all about the money. When the other company produces more, they will earn money, so you will produce more which will reduce the price due to an increase in supply, and until they are satisfied with what they are both getting, things will turn equilibrium. Because producing so much isn't the best idea, when cutting down supply they will be able to profit more sometimes. Most oligopolies will try to go to that equilibrium(Nash equilibrium). __How the size of an Oligopoly Affects the Market Outcome__ =Game Theory= -the study of how people behave in strategic situations a particularly important game is called the "prisoners' dilemma." -a particular game b/w two captured prisoners that illustrates why cooperation is diffcult to maintain even when it is mutually beneficial (because everyone is greedy, so for profit they try to cheap people off) __The Prisoners' Dilemma__ Here is an example except we are using a jail situation. In this situation most likely both of them would end up in jail for three years. The reason why this would happen is because Henry wants to get less jail time, so he would blame Dave, which would result in Dave blaming Henry. That means that they are both guilty and would result in both three years in jail. (dominant strategy - a strategy that is best for a player in a game regardless of the strategies chosen by the other players.) - there is no dominant strategy in the above picture. __Oligopolies as a Prisoner's Dilemma__ Oligopolies face the same situation. The amount they want to produce is similar to the diagram above, but its just in profits. Because there is no "best choice," both firms would likely produce their most. =Policy= __Antitrust Laws__ Antitrust laws are in place and because they are it is hard for companies to cooperate. By doing this, things go equilibrium. Once Oligopolies work together, they become inefficient, and it is not only bad for the people, but also for the nation as a whole.
 * Oligopoly
 * a market structure in which only a few sellers offer similar or identical products
 * Monopolistic competition
 * a market structure in which many firms sell products that are similar but not identical
 * The output effect:
 * B/c price is above MC, selling one more gallon of water at the going price will raise profit
 * The Price effect:
 * Raising production will increase the total amount sold, which will lower the price of water and lower the profit on all the other gallons sold.