Market Structure: Oligopoly;
THE FOLLOWING NOTES ARE THE BASIC CONCEPTS IN THE MAINSTREAM (CAPITALISTIC, NEO-CLASSICAL) ECONOMICS.
- A few companies dominate a market.
- Not easy for a new company to enter the market
- Collusion: Major companies join together (a cartel) and act as if they were a monopoly
- In Between
- In the competitive oligopoly, the price tends to stick as it is.
- If one company raises the price => others will remain the same => the demand will fall as the revenue
- If one company lowers the price => others will follow => no change of market share and the revenue of all companies will fall
- Therefore, the price competition is not common, rather companies prefer differentiation (branding and marketing)
- Collusion can be explicit (OPEC) or implicit (Price leader)
- Market works like a monopoly
- Price is set above the Average Cost (AC)
- Quantity is less than the equilibrium
- The market is allocatively / productively inefficient
- Some companies might cut the price temporarily to drive other competitors out of a market.
- Customers might benefit the low price in the short term but in the long term, winning companies may exploit the market with the power of monoploy