Chapter 17

Chapter 17 discusses oligopolies, their characteristics and how they compare to other types of markets. An oligopoly is a market with only a few sellers, each offering a product similar or identical to the others. One example is the market for tennis balls and the world market for crude oil because only a few countries in the Middle East control much of the world’s oil reserves. Oligopolists maximize their total profits by forming a cartel and acting like a monopolist. Yet, if oligopolists make decisions about production levels individually, the result is a greater quantity and a lower price than under the monopoly outcome. The concepts of game theory apply to oligopolies, such as the concept that explains why oligopoly cartels do not work: the prisoner’s dilemma. The prisoners’ dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest. Since oligopolies try to behave as monopolies by forming trusts and since they try to operate at a level that is not socially efficient, policymakers use the antitrust laws to prevent oligopolies from engaging in behavior that reduces competition.

            Reading about oligopolies after monopolistic competition was very helpful for understanding the characteristics of oligopolies because monopolistic competition is easier to understand and has the same concepts. Reading about antitrust laws in US history classes did not teach me about the characteristics of the markets and what type of market antitrust laws are used. It is very interesting to learn about this topic from a different perspective.