3. OLIGOPOLY
Oligopoly market structure
exists when there are few firms
(or sellers) in the market selling
close substitutes.
Few Firms- Interdependence on decision making
Close Substitutes- (?)
4. Features
Interdependence in decision
making
Importance of Selling and
Advertising costs
Group Behavior
Indeterminateness of demand
curve facing an oligopolist
6. Collusive Oligopoly
Practice of setting price ( and
output) jointly through an
agreement or understanding
among the firms
Two Practices:
Cartel and Price Leadership
11. Degrees of Price Discrimination
The degree (extent) that a monopolist can
charge the different price
First Degree
Second Degree
Third Degree
12. First Degree: Perfect Price Discrimination
First degree price discrimination exits when
the sell is able to sell each unit of the output
separately at a different price, price being
maximum willingness to pay of consumer
It implies selling every unit at the maximum
the consumer is willing to pay leaving no
consumer surplus
13. Figure: First Degree
Monopolist takes entire consumer surplus under first degree price discrimination
Q
P
9
8
7
6
5
4
3
2
1
1 2 3 4 5 6 7 8 9
14. Second Degree:
Sellers sells different units of output for
different prices, but every individual who buys
the same amount of the commodity pays the
same price. Thus prices differs across the
units of the commodity; but not across
consumers (individuals)
16. Third Degree
Third degree price discrimination occurs
when the seller sells different amount of
output different market
The monopolist charge price according to
price elasticity of demand
High price with inelastic demand, while low
price with elastic demand
