Chapter 17

Chapter 17 transitions to focusing on oligopoly markets. In oligopolies, there are only a few sellers, but they all sell similar or identical products. Competition in these markets is high, so the game theory was created, which analyzes how people behave in a strategic situation. In oligopolies its a lot about reaction, so firms gravitate to a nash equilibrium. This is when a situation in which economic factors interact with one another, and then each choose their best strategy, based on those around them. Firms in an oligopoly individually choose their output, which winds up being more than that of a monopoly, but less than that of a competitive firm. The oligopoly price is also less than that of a monopoly, but more than competitive price. Occasional, an agreement can occur in which firms in a market produce the same output or charge the same price. Groups of firms acting in unison are known as cartels. Duopoly are oligopolies that have only two members in the market. In oligopolies, firms also apply the dominant strategy, in which it is the best strategy for the firm regardless of what strategies other firms are employing. Oligopolies face the prisoners dilemma in which the situation explains why cooperation is difficult to keep mutually beneficial. Policy makers use antitrust laws that prevent oligopolies from reducing competition among themselves. However, this can interfere with legitimate business purposes.