Chapter 9
Oligopoly and Monopolistic Competition: Middle Grounds
IN THIS CHAPTER
Deciding whether to compete or collude in an oligopoly
Examining why some collusive pacts work and others don’t
Regulating firms so they can’t collude
Using product differentiation to elude perfect competition
Limiting profits in monopolistic competition
The two most extreme forms that an industry can take are perfect competition (with many small competitive firms) and monopoly (marked by only one firm and no competition). I cover those cases in Chapters 6 and 8. This chapter concentrates on two interesting intermediate cases: oligopoly and monopolistic competition.
An oligopoly is an industry in which there are only a small number of firms — two, three, or a handful. The word itself is Greek for “few sellers.” A diverse group of industries looks like this, including soft drinks and oil production. For instance, Coke and Pepsi dominate the soft drink market, vastly outselling other carbonated beverages. ...
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