KRUGMAN'S MICROECONOMICS for AP* Oligopoly in Practice Margaret Ray and David Anderson Micro: Econ: Module

What you will learn in this Module : The legal constraints of antitrust policy. The factors that limit tacit collusion. The causes and effects of price wars, product differentiation, price leadership, and nonprice competition. The importance of oligopoly in the real world.

Antitrust Legislation Laws including the Sherman Act and the Clayton Act make cartels, collusion, and certain anti-competitive business practices illegal

Factors Limiting Tacit Collusion Large numbers The more firms in the industry, the less likely tacit collusion will be successful Complex products and pricing schemes It is easier to tacitly agree to keep a price high if the product is simple and there are few ways price can be set. Differences in interests If firms have diverse characteristics and interests, it will be more difficult to establish and maintain tacit agreements. Bargaining powers of buyers If the buyers of a product have bargaining power, or they operate in a competitive retail environment, tacit agreements to keep prices high are unlikely to succeed. Sca

Product Differentiation and Tacit Collusion Product differentiation Price leadership Non-price competition

How Important is Oligopoly? Prevalence in the “real world” Difficulty of modeling oligopoly firm behavior

How Important is Oligopoly? Oligopoly is more common in the real world than perfect competition and monopoly and it is also more difficult to study. After all, the oil industry behaves differently than the breakfast cereal industry.Oligopoly is more common in the real world than perfect competition and monopoly and it is also more difficult to study. After all, the oil industry behaves differently than the breakfast cereal industry. But, economists use the benchmarks of perfect competition and monopoly to gauge the behavior of oligopolists and the outcomes. Are firms able to tacitly raise prices? If so, the market will share more characteristics with monopoly (high profits, deadweight loss) than with perfect competition.But, economists use the benchmarks of perfect competition and monopoly to gauge the behavior of oligopolists and the outcomes. Are firms able to tacitly raise prices? If so, the market will share more characteristics with monopoly (high profits, deadweight loss) than with perfect competition.