AP Economics Mr. Bernstein Module 64: Introduction to Oligopoly December 2015

AP Economics Mr. Bernstein Oligopolies Few producers HHI or other measures of concentration Interdependence One firm’s actions impact the other Firms could collude to raise prices and collectively act as a monopoly Trusts of the late 1800’s But each member has an incentive to marginally cheat, via increased output or price discounts OPEC is case study Reminder – collusion is illegal in the US 2

AP Economics Mr. Bernstein The Duopoly Model Joseph Bertrand ( ) If products are identical, oligopolists repeatedly lower price to undercut the competition until P=MC, as in Perfect Comp. Augustin Cournot ( ) If products are identical, oligopolists choose output, not price, to maximize profit, given an assumed output of rival. Equilibrium is reached with positive economic profits, though below monopoly . But if output is unconstrained, history suggests oligopolists return to price-based Bertrand behavior…or attempt to differentiate products 3