AP Economics Mr. Bernstein Module 66: Oligopoly in Practice December 10, 2014

AP Economics Mr. Bernstein Oligopolies in Practice Antitrust legislation has made collusion uncommon Several factors limit tacit collusion Product Differentiation, Price Leadership and Non- price competition are more attractive strategies The prevalence of Oligopolies makes understanding their decisions important, though difficult to model 2

AP Economics Mr. Bernstein Factors Limiting Tacit Collusion Large number of firms in an industry More competitors, more likely one “doesn’t get it” Complex products and pricing schemes Harder to keep up with whatever the tacit agreement is Differences in interests Firms may have differing strategic goals (geographic expansion, balance sheet issues, timeframes, personal goals of corporate leaders) Bargaining power of buyers Oligopolies often sell into distribution chain which is highly competitive market (ie breakfast cereal) 3

AP Economics Mr. Bernstein Alternative Strategies to Tacit Collusion Product Differentiation Price Leadership Once in place, is a form of tacit collusion Non-Price Competition Price, Quality, Service… “choose any two” 4