ECON 201 Lecture Notes - Lecture 10: Monopoly Profit, Oligopoly, Market Power
18 May 2016
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Document Summary
Oligopoly exists where a few large firms producing a homogeneous or differentiated product dominate a market. When oligopolists collude to maximize their joint profits, taking into account their mutual interdependence, they will produce the monopoly output and price and earn the monopoly profit. Cartel: a group of producers that creates a formal written agreement specifying how much each member will produce and charge. Most common measure of market power is the concentration ratio for an industry. The ffcr measures the fraction of the market or industry accounted for by the four largest firms. Market is measured by domestic sales, shipments, or output. In a monopoly, concentration ratios would be 100% because 1 firm produces 100% of the output. Under perfect competition, both ratios would be close to zero because even the largest firms produce only a tiny fraction of industry output. An alternative to ffcr which captures the role of dominant firms.
