Oligopoly.An oligopoly is less competitive than a market with monopolisticcompetition. It has only a few sellers who produce eitherhomogeneous or slightly differentiated products.There are steep barriers to entry in an oligopoly. Barriers can beartificial, as in the examples of patents, trademarks, copyrights, orregulation. Barriers can also be natural, as in the case of only a fewfirms controlling all the available resources that are critical toproduction.A market can evolve into an oligopoly if a few firms manage tocapture economies of scale. An economy of scale is a savings,which results from the size ("scale") of the firm. Large firms canbuy raw materials at bulk discount rates, for example. If a smallhandful of firms become low-cost producers, they will drivehighercost producers out of business and create an oligopoly.Potential new entrants may be discouraged by the industry's highstart-up cost.The few sellers in an oligopoly are interdependent. An action byone will impact all the others. If one firm tries to raise its price, thefirm's market share will be lost to its competitors. Clearly, no firmwants to lose its market share, so no firm will be foolish enough toattempt a price increase. On the other hand, if one firm lowers itsprice, then the other firms will be forced to lower their prices, too.In the end, each firm will be left with the same market share, buteveryone will earn a smaller profit. As it turns out, there is almostno incentive to raise or lower prices in an oligopoly. The firms mustengage in non-price competition.To be successful in the long run, the firms in an oligopoly mustwork at maintaining the market structure. In other words, theyhave to try to remain in an oligopoly. In a market economy, thestrategic behavior of the firms in an oligopoly can be veryaggressive. Without regulation, it can quickly become anti-competitive, too.Historically, oligopolistic markets have seen all kinds of now-illegalbehavior, all at the hands of firms who aimed to maintain marketpower. One anti-competitive strategy is collusion. When a few firmscollude, they agree to divide the market among themselves, or to fixthe market price. In effect, they eliminate the need to compete forbusiness by agreeing not to compete at all. Collusion results in allsorts of inefficient and inequitable problems, including higher pricesand lower output.Another anti-competitive strategy is to pressure legislators to createtough, new regulations for any firm that wishes to enter the market.If this strategy is carried out successfully, then the new regulationswill be easily met by the existing firms, but nearly impossible for anew entrant to satisfy. As a result, the barriers to entry will be sohigh that new suppliers cannot enter. This is common in the airlineindustry. Other oligopolies engage in price leadership: when onefirm raises prices, the rest follow.Examples of Oligopolistic Marketssteel-automobilesoilbreakfast cerealairlines 2.33 IN BRIEFShort answer. Write a brief response to each of the followingquestions about oligopolies.1. How many buyers and sellers are there in an oligopoly?2. How easy or difficult is it for a new seller to enter anoligopoly?3. How different is one seller's product from the next in anoligopoly?4. How does a seller in an oligopoly decide upon a sale price?s. What are some ways in which existing firms try to prevent newsuppliers from entering an oligopoly?

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Short answer. Write a brief response to each of the following questions about oligopolies. 1. How many buyers and sellers are there in an oligopoly? 2. How easy or difficult is it for a new seller to enter an oligopoly? 3. How different is one seller's product from the next in an oligopoly?

Short answer. Write a brief response to each of the following questions about oligopolies. 1. How many buyers and sellers are there in an oligopoly? 2. How easy or difficult is it for a new seller to enter an oligopoly? 3. How different is one seller's product from the next in an oligopoly?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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