Microeconomics For Dummies

Chapter 11

Stepping into the Real World: Oligopoly and Imperfect Competition

In This Chapter

Considering the criteria for an oligopoly

Modeling firms’ strategic behavior in oligopoly

Differentiating products to soften competition

Oligopoly is the name economists give to a type of market with only a few firms (it comes from the Greek word oligos meaning few). The classic example of an oligopoly is the airline industry, where a few airlines compete among themselves for customers, and the bulk of the domestic market is locked up among the four largest competitors: American, Delta, United Airlines, and Northwest. But oligopoly is visible everywhere, in industries as different as cable television services, computer and software industries, cellular phone services, and automobiles.

One of the ways in which economists analyze oligopoly is by comparing it with other market structures. Compared to perfect competition, described in Chapter 10, consumers don’t get as good a deal. But compared to monopoly (which has no competition, see Chapter 13), they do better under oligopoly.

Economists ...