Chapter 17

Chapter 17 is about oligopolies and their behavior in the market. Oligopolistic firms are interdependent on each other, unlike competitive firms. An oligopolistic market has few sellers that impact each other's profits with their behaviors. It is part of imperfect competition in which firms have competitors but do not face as much competition because they are price takers not price makers. An oligopoly with only two members is called a duopoly, which is the simplest type of oligopoly. When firms in an oligopoly individually choose to produce at maximum profit, they produce at a quantity greater than the level of a monopoly and less than the level produced by competitive. An oligopoly's price is less than the monopoly price but more than the competitive price. The output effect is that selling one more quantity at the price (as above marginal cost) would raise profit. The price effect is that raising production would increase the total quantity sold, which would lower the price of water and its profit on the other products sold. As the number of sellers in an oligopoly increases, it begins to look more like a competitive market. In return, the price begins to reach marginal cost and the quantity would start to reach the socially efficient level. Policymakers use antitrust laws to prevent oligopolies from reducing competition with their behavior. Controversies have arisen over the types of behavior antitrust laws should prohibit. Three examples of controversial business practices are resale price maintenance, predatory pricing, and tying. I thought this chapter was informative in its comparison of oligopolies, competitive, and monopolistic markets. It helped clarify the differences between the different markets.