Microeconomics 2011 Chapter 15 微观经济 教材课程.ppt

What Is Oligopoly?;Barriers to Entry Either natural or legal barriers to entry can create oligopoly. Figure 15.1 shows two oligopoly situations. In part (a), there is a natural duopoly—a market with two firms.;In part (b), there is a natural oligopoly market with three firms. A legal oligopoly might arise even where the demand and costs leave room for a larger number of firms. ;Figure 15.2 shows the kinked demand curve model. The firm believes that the demand for its product has a kink at the current price and quantity.;Above the kink, demand is relatively elastic because all other firm’s prices remain unchanged. Below the kink, demand is relatively inelastic because all other firm’s prices change in line with the price of the firm shown in the figure.;The kink in the demand curve means that the MR curve is discontinuous at the current quantity—shown by that gap AB in the figure.;Fluctuations in MC that remain within the gap part of the MR curve leave the profit-maximizing quantity and price unchanged. For example, if costs increased so that the MC curve shifted upward from MC0 to MC1, the profit-maximizing price and quantity would not change.;The beliefs that generate the kinked demand curve are not always correct and firms can figure out this fact. If MC increases enough, all firms raise their prices and the kink vanishes. A firm that bases its actions on wrong beliefs doesn’t maximize profit. ;Dominant Firm Oligopoly In a dominant firm oligopoly, there is one large firm that has a significant cost advantage over many other, smaller competing firms. The large firm operates as a monopoly, setting its price and output to maximize its profit. The small firms act as perfect competitors, taking as given the market price set by the dominant firm.;Figure 15.3 shows10 small firms in part (a). The demand curve, D, is the market demand and the supply curve S10 is the supply of the 10 small firms.;At a price of $1.50, the 10 small firms produce the quantity demanded. At this