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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