Authors libby rittenberg 598

KEY TAKEAWAYS


The key characteristics of oligopoly are a recognition that the actions
of one firm will produce a response from rivals and that these
responses will affect it. Each firm is uncertain what its rivals’
responses might be.



The degree to which a few firms dominate an industry can be
measured using a concentration ratio or a Herfindahl–Hirschman
Index.



One way to avoid the uncertainty firms face in oligopoly is through
collusion. Collusion may be overt, as in the case of a cartel, or tacit, as
in the case of price leadership.



Game theory is a tool that can be used to understand strategic choices
by firms.



Firms can use tit-for-tat and trigger strategies to encourage
cooperative behavior by rivals.

TRY IT!

Which model of oligopoly would seem to be most appropriate for
analyzing firms’ behavior in each of the situations given below?
1. When South Airlines lowers its fare between Miami and New York
City, North Airlines lowers its fare between the two cities. When
South Airlines raises its fare, North Airlines does too.
2. Whenever Bank A raises interest rates on car loans, other banks in the
area do too.
3. In 1986, Saudi Arabia intentionally flooded the market with oil in
order to punish fellow OPEC members for cheating on their
production quotas.

Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

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