Chapter 11

Oligopoly: I Need You

In This Chapter

arrow Competing with a few rivals

arrow Recognizing mutual interdependence

arrow Developing theories for anticipating rival behavior

arrow Prospering in the long run

I Need You is a popular song first performed by the Beatles. The lyrics describe how one person doesn’t realize how much he needs another with one lyric being “see just what you mean to me.” Well, in oligopoly, rival firms make decisions that impact or mean something to one another. Oligopolies need rivals.

Oligopolies have a small number of firms. As a result, you know that your rivals and their actions directly impact you and everybody else’s firm operating in that market. The result is mutual interdependence among firms. You need to understand how your rivals respond to your decisions, and responses can vary. Because anticipating reactions is difficult, no single theory describes oligopolistic markets. Several theories are needed to cover the range of possible behaviors.

In this chapter, I start by describing the characteristics of oligopoly. Understanding these characteristics helps you ...

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