OLIGOPOLISTIC

COMPETITION
AND PUBLIC POLICY

WHAT IS OLIGOPLY?
Consists of small number of sellers offering

a similar or closely related products.

Interdependent firms
Best off cooperating and acting like a
monopolist by producing a small quantity of
output and charging a price above marginal
cost.
Strategic interactions between firms
EXAMPLES:
OIL COMPANIES: SHELL, PETRON, CALTEX

MARKETS WITH LIMITED

SELLERS
DUOPOLY
TWO FIRMS
DECIDES QUANTITY TO SELL
SIMPLEST TYPE
PRICE DETERMINED IN THE MARKET

PUBLIC POLICY
COOPERATION AMONG OLIGOPOLISTS IS

UNDESIRABLE FROM THE STANDPOINT OF

SOCEITY AS A WHOLE BECAUSE IT LEADS
TO
- PRODUCTION THAT IS TOO LOW
- PRICES ARE TOO HIGH

RESTRAINT OF TRADE AND ANTITRUST

LAWS
ANTITRUST LAWS MAKE IT ILLEGAL TO RESTRAIN

TRADE OR ATTEMPT TO MONOPOLIZE A MARKET

SHERMAN ANTITRUST ACT OF 1890 ELEVATED

AGREEMENTS AMONG OLIGOPOLISTS FROM AN

UNENFORCEABLE CONTRACT TO A CRIMINAL
CONSPIRACY
CLAYTON ACT OF 1914 FURTHER
STRENGTHENED THE ANTITRUST LAWS
PROS:
PREVENT MERGERS
PREVENT OLIGOPOLISTS FROM COLLUDING

ANTITRUST: SHERMAN ANTITRUST

ACT
SECTION 1:EVERY CONTRACT

COMBINATION IN THE FORM OF TRUST OR

OTHERWISE, OR CONSPIRACY, IN THE
RESTRAINT OF TRADE OR COMMERCE
AMONG THE SEVERAL STATES OR WITH
FOREIGN NATIONS, IS HEREBY DECLARED
ILLEGAL.

SECTION 2: EVERY PERSON WHO SHALL

MONOPOLIZE, OR CONSPIRE WITH ANY

OTHER PERSONS TO MONOPOLIZE ANY
PART OF THE TRADE OR COMMERCE
AMONG THE SEVERAL STATES, OR WITH
FOREIGN NATIONS, SHALL BE GUILTY OF A
MISDEMEANOR.

CONTROVERSIES OVER ANTITRUST

ANTITRUST POLICIES SOMETIMES MAY NOT

ALLOW BUSINESS PRACTICE THAT HAVE

POTENTIALLY POSITVE EFFECTS:
RESALE PRICE MAINTENACE
PREDATORY PRICING
TYING

CONTROVERSIES OVER ANTITRUST

RESALE PRICE MAINTENANCE

- OCCURS WHEN SUPPLIERS REQUIRE RETAILERS TO

CHARGE A SPECIFIC AMOUNT, MIGHT SEEM
ANTICOMPETITIVE.
TYING

- WHEN A FIRM OFFERS TWO OF ITS PRODUCTS

TOGETHER AT A SINGLE PRICE, RATHER THAN
SEPARATELY, FORM OF PRICE DISCRIMINATION.
PREDATORY PRICING

OCCURSE WHEN A LARGE FIRM BEGINS TO CUT

PRICE OF ITS PRODUCTS WITH THE INTENT OF
DRIVING ITS COMPETITORS OUT OF THE MARKET.
-

WHAT SHOULD SOCEITY DO IN THE FACE OF

THE HIGH DEGREE PF MARKET CONCENTRATIO
IN OLIGOPOLISTIC INDUSTRIES?
MAIN VIEWS OF OLIGOPLOY POWER:
DO-NOTHING VIEW
ANTITRUST VIEW
REGULATION VIEW

DO-NOTHING VIEW
POWER OF OLIGOPLIES
THOUGH COMPETITION WITHIN INDUSTRIES

HAS DECLINED, THEY MAINTAIN THAT

COMPETITION BETWEEN INDUSTRIES WITH
SUBSTITUTABLE PRODCUTS HAS REPLACED
IT.
FINALLY, THEY ARGUE THAT BIGGER IS
BETTER, ESPECIALLY IN THE CURRENT AGE
OF GLOBAL COMPETITION. ECONOMIES OF
SCALE, PRODUCED BY HIGH
CONCENTRATION, ACTUALLY LOWER PRICES
FOR CONSUMERS.

ANTITRUST VIEW
ARGUES THAT PRICES AND PROFITS IN

HIGHLY CONCENTRATED INDUSTRIES ARE

HIGHER THAT THEY SHOULD BE.
BY BREAKING UP LARGE CORPORATION IN
TO SMALLER UNITS, THEY CLAIM, HIGHER
LEVELS OF COMPETITION WILL EMERGE IN
THOSE INDUSTRIES.
DECREASE IN COLLUSION, GREATER
INNOVATION AND LOWER PRICES

REGULATION VIEW
CONSUMERS ARE NOT HARMES BY LARGE

FIRMS
SUBDIVISION OF BIG INDUSTRIES IS NOT
FAVOURABLE
ENCOURAGED REGULATED MARKET AND
SUGGESTS NATIONALIZATION IN CASE OF
NON-COMPLIANCE OF MARKET
REGULATIONS.
AT THE SAME TIME, THEY SUGGESTS ILL
EFFECTS OF NATIONALIZATION.

Therefore they suggest setting up

regulatory agencies and legislation

to control the activities of large
corporations. Some even suggest
that govt should take over the
operation of firms where only
public ownership can guarantee
that they operate in the public
interest.

CONCLUSION
Whichever view we take, clearly

the social benefits of free markets

cannot be guaranteed, and the
markets themselves cannot be
morally justified, unless firms
remain competitive.

PRICING
MICROSOFT HAS BEEN

ACCUSED OF PREDATORY PRICING

STRATEGIES IN OFFERING FREE
SOFTWARE AS PART OF THEIR
OPERATING SYSTEM INTERNET
EXPLORER AND WINDOWS MEDIA
PLAYER- FORCING COMPETITORS
LIKE NETSCAPE AND REAL PLAYER
OUT OF THE MARKET.
DELIBERATE PRICE CUTTING OR OFFER OF FREE
GIFTS TO FORCE RIVALS OUT OF BUSINESS OR
PREVENT NEW ENTRANTS.
TYPICAL OF OLIGOPOLY WITH COLLUSION.