1.  Due to similarities they exhibit, monopolistic competition and oligopoly are often lumped together in a general category – imperfect competition.  Why are there no supply curves for businesses in imperfectly competitive markets?  A supply curve is only relevant when a business plans how much output to produce at various prices  A monopolistic competitor or oligopolist chooses one output level then charges the highest price the demand allows at that quantity 6.3 Imperfect Competition

2.  Recall: a kinked demand curve characterizes rivalry among competitors in an oligopoly  This model helps clarify why oligopolists operating in conditions of rivalry are reluctant to change price  Game Theory:  Originally a field in mathematics, it analyzes how mutually interdependent actors try to achieve their goals through the use of strategy – i.e. by choosing actions that take account of possible responses of other, in the same way that players in games such as chess do Game Theory

3.  A tool from game theory  Shows how self-interested strategies can be self-defeating  Classic Example:  “Two partners in crime, Peter and Paul, have been caught and put in separate jail cells. Each is considering the choice they are given by police: (a) confess to the crime and agree to implicate their partner, or (b) stay silent” The Prisoner’s Dilemma

4.  2 businesses, A and B, who agree that they will both start to charge high prices  If one business breaks the agreement and charges a lower price, the other business will follow suit and thus they haven’t increased their total revenue  If both keep the agreement, they will both win, and their total revenues will substantially increase Applying Prisoner’s Dilemma to Oligopoly

5.  Businesses can’t act in a way that prevents or lessens competition. Practices include these below:  Conspiracy – businesses conspire/agree to fix prices, allocate markets or restrict entry to markets  Bid-Rigging – companies that bid on contracts arrange among themselves who will win each contract and at what price  Predatory Pricing – temporarily dropping prices below average to drive a new competitor out of business  Abuse of Dominant Position – make purchasers of a product sign long-term contracts to buy the product exclusively  Mergers – combining of 2 companies into 1 since it would substantially reduce competition Anti-Combines Legislation in Canada

6.  Horizontal Merger  A combination of former competitors  Vertical Merger  A combination of a business and its supplier  Conglomerate Merger  A combination of businesses in unrelated industries Mergers