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Four Market Model Summary: Oligopoly


Four Market Model Summary: Oligopoly

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All right, guys, you did it. You've reached the end of the oligopoly unit. So we saw how the oligopoly is actually quite different from the other market structures, right? We had to use game theory. And we had that idea of interdependence between the firms. All right, so let's go ahead and fill out that column for the oligopoly in our model summary. Okay, So remember when we first started perfect competition, We had this page with the four market models. Right? So let's go ahead and fill in on that page, the column for oligopolies. Alright, so what did we see so far Oligopolies, the number of firms in an oligopoly were few. Right? We mostly dealt with a situation where there were two firms. Well, that's the minimum, the minimum amount for an oligopoly, right? Because if it was just one firm, we would have a monopoly. So we're gonna have few firms in an oligopoly examples. We talked about some good examples. We talked about coke and Pepsi, Right? Coke and Pepsi, that's a great oligopoly over the soft drink industry. We also talked about aluminum, aluminum is an identical good that exists in an oligopoly. There's only a few suppliers of aluminum. So that's also an oligopoly. Alright, barriers to entry in an oligopoly market barriers to entry. That's keeping people keeping other firms from entering this business. Right? And that's what we saw that there were high barriers to entry, right? It's difficult to join a market where there's an oligopoly already, Right. So barriers to entry are high there, just like with a monopoly. Alright, so let's go on here to the profit maximizing quantity. Well, the profit maximizing quantity in this case we can't really um just say there's a profit maximizing quantity like we did before with marginal revenue equals marginal costs, right? That's how we were always finding profit maximizing well here, it's more strategic, right? They have to do strategic pricing based on what their competitors are doing. So unfortunately, there's not just a profit maximizing quantity. We're just gonna have to consider what our opponents are doing, right. Our competitors to maximize our profit based on their decisions. How about long run profitability? Well, yes, it's still profitable in the long run in an oligopoly, right? Because there's so few firms, it's possible to have long run profits. Okay. And that's because of the market power. There's few firms in the market, they have market power and they're able to influence the output and the price so that there's actually profits to be made in the long run. Okay. How about the relationship between price and marginal revenue? What we saw that oligopolies face a downward sloping demand curve. Right? The only time we had that that special case with the firm facing a flat demand curve was in perfect competition. Well everywhere else, we see that the price, which is our demand curve, that average revenue curve is going to be greater than marginal revenue, right? And that's any situation where we have a downward sloping demand curve, The marginal revenue is always gonna be below it. Okay. And we also saw a situation where the price was greater than marginal cost as well, right? When the price equals the marginal cost, that's when we're being efficient, were in perfect competition in that, in that case we'll hear the price is going to exceed the marginal cost. All right. So here we go. This is not everything we covered, right? We don't really have much information about the game theory that we went over in this chapter, but this is some high level stuff that you can compare between the different market structures. Alright, So let's go ahead and move on to our next chapter.