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Oligopoly
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Oligopoly
Two examples of
oligopoly
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1985(%)
2002(%)
Bass
Allied Lyons (Carlsberg)Grand Met (Watneys)
Whitbread
Scottish and Newcastle
Courage
Others
22
1312
11
10
9
23
100
ScottishCourage
Interbrew UKCoors
CarlsbergTetley
Diageo (Guinness)
Others
27
2018
12
7
16
100
Market shares of the
largest brewers
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1985(%)
2002(%)
Bass
Allied Lyons (Carlsberg)Grand Met (Watneys)
Whitbread
Scottish and Newcastle
Courage
Others
22
1312
11
10
9
23
100
ScottishCourage
Interbrew UKCoors
CarlsbergTetley
Diageo (Guinness)
Others
27
2018
12
7
16
100
Market shares of the
largest brewers
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0
5
10
15
20
25
30
35
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
$ per barrel Actual price
Yom Kippur
War: Arab oil
embargo
First oil fromNorth Sea
Revolution
in Iran
Iraq invades
Iran OPECs first
quotas
Cease-fire in
Iran-Iraq warRecession
in Far East
Iraq invades
Kuwait
New OPEC
quotas
World-wide
recovery
World-wide
slowdown
Impending
war
with Iraq
Oil prices
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0
5
10
15
20
25
30
35
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
$ per barrel Actual priceCost in 1973 prices
Yom Kippur
War: Arab oil
embargo
First oil fromNorth Sea
Revolution
in Iran
Iraq invades
Iran OPECs first
quotas
Cease-fire in
Iran-Iraq warRecession
in Far East
Iraq invades
Kuwait
New OPEC
quotas
World-wide
recovery
World-wide
slowdown
Impending
war
with Iraq
Oil prices
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Oligopoly
A profit-maximising
cartel
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QO
Industry D =AR
Profit-maximising cartel
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QO
Industry D =AR
Industry MC
Industry MR
Q1
P1
Profit-maximising cartel
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Oligopoly
Price leadership(assumption of fixed
market share)
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QO
MRleader
AR= Dleader
AR=
Dmarket
Price leader aiming to maximise profits for a given market share
Assume constant
market sharefor leader
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QO
AR=
Dmarket
MC
MRleader
PL
QT
AR= Dleader
QL
l t
Price leader aiming to maximise profits for a given market share
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Oligopoly
Game theory
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Profits for firms A and B at different prices
2.00 1.80
2.00
1.80
Xs price
Ys price
A B
C D
10m each
8m each12m for Y
5m for X
5m for Y
12m for X
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The prisoners' dilemma
Not confess Confess
Not
confess
Confess
Amanda's alternatives
Nigel's
alternatives
A B
C D
Each gets
1 year
Each gets
3 years
Nigel gets3 months
Amanda gets
10 years
Nigel gets10 years
Amanda gets
3 months
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Oligopoly
A decision tree
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Boeingdecides
A decision treeBoeing10m
Airbus10m(1)
Boeing +30m
Airbus +50m
(2)
Boeing +50m
Airbus +30m(3)
Boeing10m
Airbus10m(4)
Airbusdecides
B2
Airbusdecides
B1
A
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Oligopoly
Kinked demand curve
theory
Ki k d d d f fi d li l
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Kinked demand for a firm under oligopoly
QO
P1
Q1
Current priceand quantity
give one pointon demand curve
Ki k d d d f fi d li l
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QO
P1
Q1
D
D
Kinked demand for a firm under oligopoly
St bl i d diti f ki k d d d
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QO
P1
Q1
MC2
MC1
MR
a
bD =AR
Stable price under conditions of a kinked demand curve