Journaling of Chapter 16: Oligopoly

Chapter 16 discusses oligopoly. Readers have already been introduced to competition and monopoly. The market structure that lies between the two extremes, competition and monopoly, is known as imperfect competition. Imperfect competition includes industries that have competitors but not enough competition to be considered price takes. Imperfect competition can have two different types. The two different types are monopolistic competition and oligopoly. Oligopoly is a market structure in which only a few sellers offer similar or identical products. Due to this fact, oligopolistic firms are interdependent. In a competitive market, the decisions of one firms has no impact on other firms in the market because it’s so small in comparison to the entirety of the market that it’s negligible. However, in an oligopolistic firm, the decisions of one firm affect the other firms pricing and production decisions. A duopoly is an oligopoly that only contains two firms. Oligopolies should try to form a cartel, group of firms acting in unison, so that they can all behave as monopolists but the larger the oligopoly is, the more firms, the harder that becomes to achieve. Game theory is the study of how people behave in strategic situations. The readers are introduced to the prisoners’ dilemma. It illustrates why cooperation is difficult to maintain even if both sides are mutually beneficial. This relates to oligopoly because oligopolistic firms are better off cooperating with one another but they often don’t. Policymakers try to induce firms in an oligopoly market to compete rather than cooperate.  

I would give this chapter a difficulty rating of 2 out of 3. It’s easy to comprehend because we have already learned the two extremes and now we’re just looking at the concept that’s in between. However, this chapter introduced a lot of new concepts such as Nash equilibrium and the prisoners’ dilemma. Though confusing at times, overall, I was able to follow along.