Chapter 17: Oligopoly

This chapter talks about oligopolies. An oligopoly is a market that has a few sellers. It is different from monopolies because they have one seller. In a monopolistic competition, there are many firms with different products. Finally, in perfect competition there are many firms with identical products. This chapter talks about the concentration ratio which is the percentage of total output in the market supplied by the largest firms. It is usually over fifty percent and includes about four firms. The chapter also talks about collusion which is an agreement among firms in a market about the quantities to produce or the prices to charge. Sometimes, collusions form cartels,which are groups of firms that act in unison. Antirust acts have been set in order to limit the cartels from forming because of the impact that they may have on society. The Nash equilibrium is a situation in which economic participants interacting with one another each choose their best strategy given the strategies given the strategies that all the others have chosen. We also learn about the game theory which is the study of how people behave in strategic situations. In general, when firms in an oligopoly choose on their own how much to produce to maximize profit, they tend to produce a quantity greater than the level produced by monopoly and less than produced by competition.