Chapter 16

Chapter 16 was about oligopolies. Most firms are not either perfectly competitive or completely monopolistic. These are two extremes that rarely occur in real life. What is more of a realistic situation is a firm that is somewhere in the middle. The two kinds of firms that are in the middle are oligopolies or monopolistically competitive. When there is a competitive market that makes different products instead of the exact same one, like books or music, they still have some kind of market influence and it is therefore not a perfectly competitive market. We call this scenario a competitively monopolistic market. There is also the case where just a few companies produce nearly all of the output of a market, which is basically more than half. An example is tennis balls and this scenario is called an oligopoly. Oligopolies have the potential to be a monopoly if they collude together to form a cartel, like OPEC, but that is rarely the case. It is hard for firms to work together because everyone watches out for their own interests and that results in the total profit for everyone continually decreasing until a natural equilibrium is reached. This is illustrated through the example of the Prisoner's game. Antitrust laws also prevent collusion legally but the main reason it does not occur is probably that the needs of the individual often collide with the needs of the cartel. It can be a negative thing for society with cases like the arms race but beneficial with oligopolies.