ECON101 Lecture Notes - Lecture 15: Oligopoly, Marginal Revenue, Marginal Cost

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Fatma

Document Summary

In oligopolistic market, a firm sets price or output based partly on strategic considerations regarding the behaviour of its competitors. At the sa(cid:373)e ti(cid:373)e, (cid:272)o(cid:373)petito(cid:396)s" de(cid:272)isio(cid:374) depe(cid:374)ds o(cid:374) the fi(cid:396)(cid:373)"s de(cid:272)isio(cid:374) In an oligopolistic market, each firm is doing the best it can given what competitors are doing. Oligopoly is a market structure in which: natural or legal barriers prevent the entry of new firms, a small number of firms compete. Characteristics of oligopoly market: many buyers, few sellers/producers, unique/differentiated products, there are barriers to entry. Either natural or legal barriers to entry can create oligopoly. There are two oligopoly situations: there is a natural duopoly a market with two firms, there is a natural oligopoly market with three firms. A legal oligopoly might arise even where the demand and costs leave room for a larger number of firms. Because an oligopoly market has a small number of firms, the firms are interdependent and face a temptation to cooperate.