OLIGOPOLY

demand curve
5. Administered prices

few sellers.
Is the product identical or differentiated? It doesn't

matter.
The crucial factor under oligopoly is the small number of firms in the industry. Because there are so few firms, every competitor must think continually about the actions of his rivals, since what each does could make or break him. Thus there is a kind of interdependence among oligopolists.

of the monopolist, we will analyze it in exactly the

same manner with respect to price, output, profit, and efficiency. Price is higher than the minimum point of the ATC curve, and output is somewhat to the left of this point. And so, just like the monopolist, the oligopolist has a higher price and a lower output than the perfect competitor.

makes a profit. With respect to efficiency, since the oligopolist

does not produce at the minimum point of its ATC, it is not as efficient as the perfect competitor.

is, is to look at the percentage share of sales

of the leading firms. This is called the industry's concentration ratio.
Economists use concentration ratios as a quantitative measure of oligopoly. The total percentage share of industry sales of the four leading firms is the industry concentration ratio. Industries with high ratios are very oligopolistic.

it turns out, is a lot easier to do than

to say.
The Herfindahl-Hirschman Index (HHI). The Herfindahl-Hirschman index (HHI) is the sum of the squares of the market shares of each firm in the industry.

cartel, where the firms behave as a monopoly in a

manner similar to that of the Organization of Petroleum Exporting Countries (OPEC) in the world oil market.

territorial division of the market among the firms in the

industry.
This would be a division similar to that of the Mafia, if indeed there really is such an organization. An oligopolistic division of the market might go something like this.

On a national basis, each operation's market situation is depicted

by Figure 2.

during the last few years of less-than-stringent enforcement of the

antitrust laws.
Now, as we move to somewhat less extreme cases of collusion, we begin to enter the real of reality. This brings us to the celebrated electric machinery conspiracy case.

leadership.
2. Another form of price leadership is the setting of

the prime rate of interest by the nation's leading banks.

firms in oligopolized industries to ignore each other's actions and

anticipated reactions with respect to price and output.

case of oligopolists who are cutthroat competitors, firms that do

not exchange so much as a knowing wink.
Each is out to maximize its profits. These oligopolists are ready to cut the throats of their competitors, figuratively speaking, of course.

relatively long periods of time, without responding to the normal

market forces, mainly, changes in demand.

competitors would be too small to dictate price. Monopolists would

change their output and price in response to changes in demand to maximize their profits.
But under competitive oligopoly, the firms would rarely shift output or price because they would continue to maximize profit as long as MC was within the range of MR.

most likely under very competitive oligopoly. But oligopoly is the

dominant type of competition in American industry, though many would question just how competitive our oligopolies are.