Review Notes - Market Structure: Oligopoly

Monopolistic Competition

- Characteristics of M.C. market

- many buyers and sellers

- all small relative to the market

- differentiated product

- no entry/exit barriers.

- What is firm D in a M.C. market? Market Demand? Why is firm D downward sloping? What is the impact of increased product differentiation on Firm D (increases or decreases firm D?; increases or decreases elasticity?).

- profit maximization graphically. Be prepared to find profit maximizing q and p, profit, TR, TC, TVC, TFC, AFC, AVC, ATC. (Remember all profit maxmizing firms will produce, if they produce at all where MR=MC.)

- the long-run in monopollistically competitive markets.

- the crucial characteristic = no entry barriers => profit must be = 0 in the long-run.

- if profit > 0 => entry occurs, what is the impact on Firm D (does D increase or decreases? does elasticity increase or decreases?)? What if profit < 0?

- What is the long-run equilibrium? What does it look like graphically?

- Are monopolisticaly competitive markets efficient?

- Technological efficiency (both firm and industry)?

- Allocative efficiency?

Oligopoly

- Characteristics of oligopoly market

- many buyers but few sellers (more than one)

- firms are large relative to the market

- differentiated or homogeneous product

- entry barriers.

- Mutual Interdependence - oligopoly firms must take into account the actions of their competitors. Models discussed include:

- Know the definitions, etc. of Game Theory

- strategies, players, cooperative solution, cooperative surplus, nash equilibrium, etc.

 

- We discussed 2 game theory models:

- cartels/collusion (joint profit maximization). What problems are faced by colluding firms? Why do cartels tend to fail?  Application of game theory.

- Non-collusive game theory model

- Are oligopoly markets efficient?

- Technological efficiency (both firm and industry)?

- Allocative efficiency?

 

Anti-trust

- Major Anti-trust Laws (not specifics just generalities)

- The court's approach to interpreting anti-trust law

- the rule of reason doctrine (approach)

- the per se doctrine

 

Regulation

- Why have regulation - three theories

- The Public Interest Theory

- The Capture Theory

- Public Choice Theory

- Make sure you understand the premise behind each theory especially as it relates to which benefits from the regulation under each theory