7.2 Discussion
In the initial post, include the image of your simulation report in your response. Then, address the following questions:
• What are the main features of an oligopolistic market?
• How do oligopolies set their prices?
• Explain how you can distinguish a firm in an oligopolistic market from one in a monopolistic competitive market. Provide examples to illustrate.
• Chapter in a Nutshell
• Oligopolists maximize their total profits by forming a cartel and acting like a monopolist. Yet, if oligopolists make decisions about production levels individually, the result is a greater quantity and a lower price than under the monopoly outcome. The larger the number of firms in the oligopoly, the closer the quantity and price will be to the levels that would prevail under perfect competition.
• The prisoners’ dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest. The logic of the prisoners’ dilemma applies to many situations, including arms races, common-resource problems, and oligopolies.
• Policymakers use the antitrust laws to prevent oligopolies from engaging in behavior that reduces competition. The application of these laws can be controversial because some behavior that can appear to reduce competition may in fact have legitimate business purposes.
We focus on a “game” called the prisoners’ dilemma, which provides insight into why cooperation is difficult. Many times, in life, people fail to cooperate with one another even when cooperation would make them all better off. An oligopoly is just one example. The prisoners’ dilemma provides a general lesson that applies to any group trying to maintain cooperation among its members.