Chapter 17 Blog

In this chapter, we are introduced to the concept of oligopoly. Oligopoly is similar in many ways to monopolistically competitive markets, which we learned about in the last chapter, but differs in a few key ways. An oligopolistic market is characterized as a market in which a few sellers control the majority of the market. An oligopolistic firm aims to maximize their total profits by forming a cartel, or a group of firms acting in unison, and acting as a monopoly within the cartel. If oligopolists fail to act as a monopoly, the resulting quantity is too high and the resulting price is too low. The more firms that are involved in an oligopoly, the more the firms will act like firms in a competitive market, and the quantity and price will approach the socially efficient quantity. One of the ways you can understand oligopolists and their choices is by examining the prisoner's’ dilemma, in which you can see that while the choice to cooperate will always have a more beneficial outcome, self-interest will point people toward their “dominant strategy”, which might be beneficial for them but not as beneficial as if they had cooperated. This dilemma is an example of game theory and can easily be applied to oligopoly, as well as a variety of other situations. Policymakers do not like cooperation and collusion between oligopolists because it is not socially efficient, so they forbid these behaviors with antitrust laws.