Posts tagged oligopoly

IB Syllabus requirements:

• Assumptions of the model
• Collusive and non-collusive oligopoly
• Cartels
• Kinked demand curve as one model to describe interdependent behaviour
• Importance of non-price competition
• Theory of contestable markets

BrynJonesOnline introduces the theory before moving onto Kinked Demand Theory:

Cartels

This helpful video is by richardmckenzie

Non Collusion – Kinked Demand Theory:

An animated slideshow on oligopoly focuses on kinked demand theory (from the excellent Reffonomics ).

The above introduces the ‘kink’ (by ACDCLeadership). The below is by pajholden and goes into more detail:

kinked demand curve theory (click on the link to view)

The kinked demand theory can be extended to show how such a non-collusive oligopolistic firm makes a loss, makes a profit or breaks even (again from the excellent Reffonomics ).

Theory of Contestable Markets

pajholden discusses the theory in his back garden: contestable market theory

economicslessons has produced this video geared towards A Level economics (so the example question at the end is not an IB one):

Extra:

On the interdependency of firms, we should consider John Nash who arrived at the theory of a Nash Equilibrium in which members of a group would serve their own interests by also serving the rest of the group’s interests (as opposed to Adam Smith’s contention that individuals (or firms) will strive to serve their own interests only). This idea was captured in the excellent film A Beautiful Mind and the relevant excerpt can be seen by clicking here.

On the difficulty of drawing a line between monopolistic competition and oligopoly, view this slideshow by Reffonomics.

Finally, for a bit of fun, see how a famous condom manufacturer has approached non-price competition through the power of advertising by clicking here.