Oligopoly • Oligopoly A market structure in which a small number of interdependent firms compete. • The approach we use to analyze competition among oligopolists is called game theory.
1 LEARNING OBJECTIVE 13 - 1 Examples of Oligopolies in Retail Trade and Manufacturing Oligopoly and Barriers to Entry Barrier to entryAnything that keeps new firms from entering an industry in which firms are earning economic profits. • Barriers to Entry
13 - 1 Economies of Scale Help Determine the Extent of Competition in an Industry Oligopoly and Barriers to Entry Economies of scaleEconomies of scale exist when a firm’s long-run average costs fall as it increases output. • Barriers to Entry
Oligopoly and Barriers to Entry • Barriers to Entry • In addition to economies of scale, other barriers to entry include: • Ownership of a key input • Government–Imposed Barriers • Patent The exclusive right to a product for a period of 20 years from the date the product was invented.
2 LEARNING OBJECTIVE Using Game Theory to Analyze Oligopoly • Game theoryThe study of how people make decisions in situations where attaining their goals depends on their interactions with others; in economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms. • Key characteristics of all games: • Rules that determine what actions are allowable. • Strategies that players employ to attain their objectives in the game. • Payoffs that are the results of the interaction among the players’ strategies. • Business strategyActions taken by a business firm to achieve a goal, such as maximizing profits.