Suppose cable service in Pleasantville is provided by two competitors. Both are considering adding an additional channel to their services. The consequences of their actions are shown as changes in profits (or losses) in the table. If both firms follow their dominant strategy, the changes in profits of Smith’s and Jones’ respectively are

In economics, an oligopoly is a market structure where only a few market participants compete with each other. The competitive dynamics within an oligopoly are distorted to favor a limited number of influential sellers.  Oligopolies can be characterized by collusion, where firms act jointly like a monopolist to share industry profits, or by competition, where firms compete aggressively for individual profits.  Oligopolies are a form of imperfect competition that occurs when there are two to ten sellers in a market selling homogeneous or differentiated products.  There are three models of... Show more

In economics, an oligopoly is a market structure where only a few market participants compete with each other. The competitive dynamics within an oligopoly are distorted to favor a limited number of influential sellers. 

Oligopolies can be characterized by collusion, where firms act jointly like a monopolist to share industry profits, or by competition, where firms compete aggressively for individual profits. 
Oligopolies are a form of imperfect competition that occurs when there are two to ten sellers in a market selling homogeneous or differentiated products. 

There are three models of oligopoly markets:
Cournot model: Firms choose quantities. In this model, firms face downward-sloping demand curves, which means that the price they receive for their output depends on the total quantity produced.
Bertrand model: Firms choose prices. 
Stackelberg: In this model, one firm sets its output before the other firms do. It is also called quantity leadership model.

Oligopolies can either be collusive or non-collusive:
Collusive oligopoly: Firms form an agreement to jointly set prices and choose the production level at which they can maximize their profits.
Non-collusive oligopoly: Firms compete with each other rather than cooperating.

Related Tests:

Economics 101 Practice Test: Competitive Markets

Economics 101 Practice Test: Monopoly

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