Lesson Plan
Market Structure: Oligopoly
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I. Characteristics of imperfectly competitive industries
- - monopolistic competition
- - large number of potential buyers and sellers
- - differentiated product (every firm produces a different product)
- - buyers and sellers are small relative to the market
- - no barriers to entry or exit
- - oligopoly
- - large number of potential buyers but only a few sellers
- - homogenous or differentiated product
- - buyers are small relative to the market but sellers are large
- - barriers to entry
- - what is product differentiation?
- - examples
- - impact of product differentiation on firm demand
- - relationship between firm demand and market demand
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II. Monopolistic Competition
- - the short-run in monopolistically competitive industries
- - can profit be positive, negative, zero?
- - loss minimization in the short-run
- - the long-run in monopolistically competitive industries
- - profit as a signal for entry and exit
- - if profit < 0 then firms exit
- - if profit > 0 then firms enter
- - what happens to an existing firm's demand when
firms enter or exit the industry?
- - does an existing firm's demand curve shift?
If so, which direction?
- - what happens to the existing firm's price elasticity of demand?
- - thus, long-run equilibrium when profit = 0
- - what are the characteristics of the
equilibrium? (Hint: compare to perfect competition and monopoly)
- - are monopolistically competitive industries efficient?
- - technological efficiency
- - firm technological efficiency
- - industry technological efficiency
- - allocative efficiency
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III. Oligopoly
- - characteristics
- - impure oligopoly has differentiated product
- - pure oligopoly has homogeneous product
- - measuring monopoly (market) power
- - definition of concentration ratios
- - how do concentration ratios measure market power (be
sure you can interpret concentration ratios.
- - examples
- - why does oligopoly exist? Barriers to entry in oligopoly industries
- - economies of scale - natural barriers to entry
- - artificial barriers to entry
- - what is mutual interdependence? Why are oligopoly firms mutually interdependent?
- - Models of oligopoly behavior
- Game Theory
- Definitions (players, strategies, payoffs, payoff matrix)
- examples of games
what is a cooperative surplus? A dominant strategy? A
Nash Equilibrium?
- a non-collusive game theory model (what is collusion?)
- - collusive model - the cartel or joint monopoly
- why collude?
- - problems the firms face with collusion
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- - A game theory
model of collusion
- - are oligopoly industries efficient?
- technological efficiency
- firm technological efficiency
- - industry technological efficiency
- - allocative efficiency
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IV. Antitrust and Regulation
- antitrust - the rationale
- major antitrust laws
- - Supreme Court interpretations of anti-trust law
- rule of reason approach to anti-trust
- - the per se approach
- - regulation
- why regulate?
- public interest theory
- regulating monopoly power (natural monopolies)
- - externalities
- - lack of information by consumers
- - capture theory - businesses may benefit from regulation
- examples
- - public choice theory - regulation is in the best interest of the regulators