Page 343 - The Principle of Economics

OLIGOPOLY
If you go to a store to buy tennis balls, it is likely that you will come home with one of four brands: Wilson, Penn, Dunlop, or Spalding. These four companies make almost all of the tennis balls sold in the United States. Together these firms deter- mine the quantity of tennis balls produced and, given the market demand curve, the price at which tennis balls are sold.
How can we describe the market for tennis balls? The previous two chapters discussed two types of market structure. In a competitive market, each firm is so small compared to the market that it cannot influence the price of its product and, therefore, takes the price as given by market conditions. In a monopolized market, a single firm supplies the entire market for a good, and that firm can choose any price and quantity on the market demand curve.
The market for tennis balls fits neither the competitive nor the monopoly model. Competition and monopoly are extreme forms of market structure. Com- petition occurs when there are many firms in a market offering essentially iden- tical products; monopoly occurs when there is only one firm in a market. It is
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IN THIS CHAPTER YOU WILL . . .
See what market structures lie between monopoly and competition
Examine what
outcomes are possible when a market is an oligopoly
Learn about the prisoners’ dilemma and how it applies to oligopoly and other issues
Consider how the antitrust laws try to foster competition in oligopolistic markets