1、Unit 4Text:Oligopoly（寡头垄断）1.Key words2.Characteristics of oligopoly3.Price and output decisions for an oligopolist4.An Evaluation of Oligopoly5.Questionsimperfectly competitive market structuremanufacturing industrystandardized productnonprice competitionkinked demand curveprice leadershipproduct di
2、fferentiationRDprice makerprice takerprice rigidityOPECcrude oilperfectly competitive firm2.1 Definition of oligopoly2.2 Characteristics of oligopolyOligopoly is an imperfectly competitive market structure in which a few large firms dominate the market.Many manufacturing industries,such as steel,alu
3、minum,automobiles,aircraft,drugs,and tobacco,are best described as oligopolistic.An oligopoly is characterized by:Few sellers;Either a homogeneous or a differentiated product;Difficult market entry.Oligopoly is found in real-world industries.2.2.1 Few Sellers2.2.2 Homogeneous or Differentiated Produ
4、ct2.2.3 Difficult EntryOligopoly is competition“among the few.”Basically,an oligopoly is a consequence of mutual interdependence.Mutual interdependence is a condition in which an action by one firm may cause a reaction from other firms.Stated another way,a market structure with a few powerful firms
5、makes it easier for oligopolists to collude.Under oligopoly,firms can produce either a homogeneous or a differentiated product.The oil sold by Saudi Arabia is identical to the oil from Iran.Similarly,zinc,copper,and aluminum are standardized products.But cars produced by the major automakers are dif
6、ferentiated products.Formidable barriers to entry in an oligopoly protect firms from new entrants.These barriers include exclusive financial requirements,control over an essential resource,patent rights,and other legal barriers.But the most significant barrier to entry in an oligopoly is economies o
7、f scale.3.1 Nonprice competition3.2 The kinked demand curve3.3 Price leadership3.4 The cartelMajor oligopolists often compete using advertising and product differentiation.Instead of“slugging it out”with price cuts,oligopolists may try to capture business away from their rivals through better advert
8、ising campaigns and improved products.Why might oligopolists compete through nonprice competition,rather than price competition?The answer is that each oligopolist perceives that its rival will easily and quickly match any price reduction.On the other hand,it is much more difficult to combat a cleve
9、r and/or important product improvement.The kinked demand curve is a demand curve facing an oligopolist that assumes rivals will match a price decrease,but ignore a price increase.Without collusion,the kinked demand curve exists because management tacitly believes that the competition will not be“und
10、ersold.”On the other hand,a price hike by one firm allows competitors to capture its share of the market.Oligopolistic firms must make pricing decisions,so they are price makers,rather than price takers.But as we will soon see in the kinked demand model,the high degree of interdependence among oligo
11、polists restricts their pricing discretion.Without formal agreement,firms can play a game of follow-the-leader that economists call price leadership.Price leadership is a pricing strategy in which a dominant firm sets the price for an industry and the other firms follow.Following this tactic,firms i
12、n an industry simply match the price of perhaps,but not necessarily,the biggest firm.Another way to avoid price wars is for oligopolists to agree to a peace treaty.Instead of allowing mutual interdependence to lead to rivalry,firms openly or secretly conspire to form a monopoly called a cartel.A car
13、tel is a group of firms that formally agree to control the price and the output of a product.The goal of a cartel is to reap monopoly profits by replacing competition with cooperation.4.1 The price charged for the product will be higher than under perfect competition.4.2 Both price and output may be
14、 higher under oligopoly than under perfect competition.4.3 The oligopolist can earn a higher profit than under perfect competition.The smaller the number of firms in an oligopoly and the more difficult it is to enter the industry,the higher the oligopoly price will be in comparison to the perfectly
15、competitive price.An oligopoly is likely to spend money on advertising,product differentiation,and other forms of nonprice competition.These expenditures can shift the demand curve to the right.As a result,both price and output may be higher under oligopoly than under perfect competition.In the long
16、 run,a perfectly competitive firm earns zero economic profit.The oligopolist,however,can earn a higher profit because it is more difficult for competitors to enter the industry.(1)List two goods or services that you have purchased that were produced by an oligopolist.Why are these industries oligopolistic?(2)Discuss the four well-known oligopoly models.(3)Make a brief evaluation of the oligopoly market structure.
