This outcome depends on coordination among the oligopolists.
There's a conflict between the interests of both individuals and oligopolists.
Their interest is in maximizing industry profit.
The individual interest of each oligopolist is to maximize its own share of sales and profit.
The internal tension within the oligopoly is created by this conflict.
Each firm wants to have a large market share.
Competition in the market shares of rivals threatens to bring price reductions and reduced industry profits.
It would be easy to identify the profit-maximizing rate of industry output.
The associated profit-maximizing price would be seen once the optimal rate of output was found.
The assignment of market shares is the only remaining issue.
For more than 30 years Ivy League schools worked together to offer a uniform financial-aid package for individual students.
The schools were ordered to stop that practice by the Justice Department.
In 1961, General Electric and Westinghouse were found guilty of fixing the prices of electrical generators that they sold to the Tennessee Valley Authority and commercial customers.
Some corporate executives went to prison and others were put on supervised release.
The companies were fined a total of $1.8 million and had to pay triple damages to their customers.
The only two U.S. manufacturers of turbine generators, General Electric and Westinghouse, were charged with price-fixing by another suit in 1972.
Between 1988 and 1991, the U.S. Justice Department filed charges against 50 companies for fixing the price of milk sold to public schools.
The companies paid over 20 million dollars in fines.
The company paid $8 million in fines for fixing bids on milk.
The makers of baby formula agreed to pay $5 million in 1992 to settle charges that they had fixed prices.
Three companies control 95 percent of the market.
In 2006 thirteen companies paid $55 million in penalties for fixing prices.
The commission rates were fixed by Christie's and Sotheby's, who together control 90 percent of the world's art auction business.
When they were caught, they paid a $512 million fine.
The FTC charged AOL-TimeWarner and Universal Music with fixing prices on the best-selling CD.
The advertising of discounted CD prices should be allowed.
In 2002 the companies gave away $76 million in free CDs to settle the case.
The FTC charged the two companies that sell the lasers with price-fixing that inflated the retail price of surgery by $500 per eye.
In 2005, the world's largest memory-chip manufacturers admitted to fixing prices in the $16 billion-a-year DRAM market and paid nearly $700 million in criminal fines.
They can achieve the same result in more subtle ways.
If all the firms in the market agree to raise prices at the same time, the result is the same.
In the electrical industry, instead of conspiring in motel rooms.
This is how Coke andPepsi communicated their desire to end their price war.
The major airlines developed a form of price leadership.
The price hike was announced after it was clear that all the airlines would match it.
According to the Justice Department, this "electronic dialogue" was equivalent to a price-fixing conspiracy that cost consumers $1.9 billion in excessive fares.
The monopolist cuts back his rate of output when there is a monopolistic industry.
No single firm will want to incur the whole weight of that cutback.
All the oligopolists require some form of accommodation.
The reduced sales volume can be adjusted in many ways.
The members of the organization assign explicit quota for each country's oil output.
A novel method of allocating market.
It wasn't difficult to agree on high prices for electric generators.
One firm was designated as the low bidder for a particular phase of the moon.
The low bidder would charge the high price, with the other firms offering their products at even higher prices.
The low bidder would get the sale.
When the moon entered a new phase, the order of low and high bidders changed.
Each firm got a share of the business, and the price-fixing scheme hid behind a facade of "competitive" bidding.
Independence Air ceased flying on January 5, 2006 The CEO of Continental did the same.
The fare war kept Inde Skeen from gaining enough market share to survive.
After Independence ceased flying, the "walk-up" Skeen observed that the Washington, DC area was "scream fare between Dulles and Atlanta jumped from $118 to $478".
Other fares followed.
The major carriers did not agree.
As Independence took flight, United Airlines slashed fares.
The story is called "Flying Monopoly Air."
oligopolists must be able to eliminate competition to protect their prices and profits.
Pricing can serve that purpose.
The systems for allocating market shares are not the norm.
When market shares are thrown out of balance, the oligopolists let the sales and output reduction be divided up according to consumer demands.
The use of price reductions that are designed to cut can be used as a significant barrier to entry or as a way to drive out competition.
The News feature describes how major airlines forced Independence Air out of their market.
Every legal tactic was used to fight NTP.
It succeeded in getting the U.S. Patent and Trade ordered shutdown of its widely usedBlackBerry wireless email mark Office to reexamine NTP's patents and take steps to over device, agreed to pay $612.5 million.
NTP promised a legal battle with NTP Inc.
The settlement was announced after markets closed on Friday, ending a five-year legal battle that saw a tiny patent-holding firm take on one of technology's hottest companies and threaten to disrupt service to users in the U.
March 4, 2006 edition.
The news was greeted with relief by DOW JONES.
The Clearance Center said that it will continue to be business as usual with regards to Jones and Company, Inc.
Potential competitors can't enter a market unless they pay for patent rights.
If oligopolies establish monopoly prices and profits, they'll attract the attention of would-be entrants.
Unless barriers to entry exist, profits can't be maintained over the long run.
Those monopolists use the entry barriers.
Patents are an effective barrier to entry.
Potential competitors can't set up shop until they either develop an alternative method for producing a product or receive permission from the patent holder to use the patented process.
It costs something when given such permission.
Research in Motion paid $612.5 million for the patent rights to produce Blackberries.
Taking control of distribution outlets is one way of controlling the supply of a product.
It will increase its market power.
The control of distribution outlets can be accomplished through patents, which make it difficult or impossible for gifts at Christmas.
Clear Channel and would-be producers were able to enter a locked up concert arenas by recalling from Chapter 24.
According to the U.S. Justice Department, Visa is a particular market.
Frito-Lay pays high fees to get shelf space in grocery stores.
Entry barriers are created by such up-front costs.
Even if a potential rival can come up with the up-front money, the owner of an arena or grocery store chain may not want to upset the firm that dominates the market.
New car warranties are an entry barrier.
The exclusive use of authorized parts and regular maintenance at authorized dealerships are required by the warranties.
The provisions limit the ability of would-be competitors to provide cheaper auto parts and service.
The airline industry has similar effects on frequent-flier programs.
Competition is reduced by mp3 players that restrict download options.
Frito-Lay is chewing up the competition again.
Frito-Lay can promote its products.
The company spent more than $60 million on advertising in 1993, while Eagle spent less than $2 million.
Half of the market is owned by the company.
According to Michael Branca, an analyst at Nat Frito-Lay's market share in various snack-food categories, Frito's is a fortress.
It continues to expand.
Frito-Lay's tactics with retailers make it an unstoppable foe.
Frito-Lay is paying retailers to sell their brands.
A regional snack company says "Frito can afford it" in the format Textbook via Copyright tive.
Self-space rental and advertising are barriers to entry that allow a firm to maintain market dominance.
Competition is reduced by acquisitions.
The most dramatic case of acquisition for this purpose was in the breakfast cereals industry.
General Foods acquired the manufacturing facilities of a major competitor.
The General Foods acquisition was more dramatic than most, but it was still the most popular route to increased market power.
The success of merging with and acquiring two dozen independent manufacturers gave General GM a dominant share of the auto market.
The American Tobacco Company gained monopoly powers in the cigarette industry.
After antitrust action split the tobacco monopoly into an oligopoly, four companies continued to dominate the cigarette market until 2004.
The cigarette industry is dominated by three firms.
Other companies that dominated their product markets through acquisitions include U.S. Steel, U.S. Rubber, General Electric, and United Fruit.
Frito-Lay's acquisition of Eagle Snacks in 1995 gave it control of the chip, pretzel, and nuts markets.
The government helps companies control the market.
There are barriers to international trade.
The federal government reduces potential competition in the U.S. product markets by limiting imports of everything from Chinese mushrooms to Japanese cars.
GTE Corporation was allowed by the FCC to provide telephone service on airlines from 1984 to 1990.
The FCC ended the monopoly in 1990.
The number of taxicabs on the streets of New York City limits competition.
The ceiling for the maximum number of cabs was 11,787 in 1937.
The ceiling was raised by 400 cabs in 1996.
It didn't do much to eliminate New York's taxi shortage.
License holders reap monopoly-like profits.
The price of the taxi licenses that the city sells is a good indicator of profits.
Entry into the New York City taxi industry cost $415,000 in 2007.
Taxi licenses in Washington, D.C. are only $35, and fares are less than in New York.
To the extent that a firm can convince you that its product is essential to your well-being and happiness, it has effectively shifted your demand curve.
Advertising makes it expensive for new producers to enter the market.
A new entrant needs to purchase production facilities and advertising outlets.
The cigarette industry has a high concentration of products.
Table 25.2 shows that the top three cigarette companies produce 89 percent of domestic output.
There are well over 100 brands produced by the three cigarette companies.
In 2006 the cigarette industry spent over $10 billion on advertising and promotions.
Nonprice competition is used by the breakfast cereals industry.
M A R K E T S T R U C T U R E million a year to convince consumers otherwise.
More than 200 brands of cereals have been marketed by these companies.
The FTC has documented that the four companies produce basically the same RTE cereals, and then emphasize and exaggerate trivial variations such as color and shape.
An important barrier to later competition can be created by early market entry.
Customers of computer hardware and software become familiar with a particular system or computer package.
The retraining of user staff may be required to switch to a new product.
Even if they offer better quality and lower prices, would-be competitors will find it hard to sell their products.
It is possible that the widespread use of a particular product will heighten its value to consumers.
The utility of instant messaging depends on how many of your friends have computers.
No one else would have a reason to own a phone or computer.
Software developers prefer to write Windows-based programs over programs for other operating systems because of network economies.
Network economics explains why Microsoft doesn't want computer manufacturers to display icons for rival instant-messaging services.
The network entry barrier may be achieved by whichever instant-messaging service expands the fastest.
There are examples of market power in product markets in this book.
Market power has some influence on our lives, according to the few cases cited here.
We should leave it to market forces.
The quantity of goods supplied to the market, their quality, and their price are what ultimately counts.
The government could change industry behavior without changing industry structure.
We could outlaw collusive agreements and cast a wary eye on industries that exhibit price leadership.
We could promote contestable markets by removing barriers to entry.
There are many problems with this approach.
scarce resources are the first limitation.
Firms being investigated have more resources than public watchdogs.
Public apathy is part of the reason for the lack of antitrust resources.
Consumers don't think about the connection between market power and wages, the way they live, or the goods they buy.
There isn't much political pressure to regulate market behavior.
The "burden-of-proof" requirement hurts the behavioral approach.
It's difficult to prove the charge of explicit colluding.
Consumers suffer even in the absence of explicit colluding.
Consumers are stuck with the bill if the price is higher than what a competitive industry would charge.
It says that oligopolists and monopolists will act in their own best interests.
It is naive to expect an oligopolist to ignore its interdependence with other oligopolists.
The basic motives of a market economy are violated.
We must expect to observe oligopolistic behavior if markets are highly concentrated.
The Aluminum Company of America was dismantled by Judge Learned Hand in 1945.
The company supplied over 90 percent of the aluminum to the market.
The Supreme Court concluded that the monopoly structure was a threat to the public interest.
Today, corporate breaks are rarely pursued.
The Justice Department withdrew a proposal to break up Microsoft.
The powerful firms are too big and entrenched to make deconcentration a viable policy alternative.
The companies challenged by the public are protesting that they are being punished for their success.
The monopoly was attained by investing heavily in a new product.
Other firms have captured dominant market shares by being first, best, or most efficient.
The same argument is used for mergers and acquisitions.
The firms claim that the increased concentration will increase productivity.
Big firms are needed to maintain America's competitive position in international markets, which are often dominated by foreign monopolies and oligopolies.
They contend that the global markets ensure that domestic markets will be challenged by international rivals.
Critics of antitrust say market forces will ensure competitive behavior.
Foreign firms and domestic entrepreneurs will try to get into a monopolist's preserve.
Ibid., p. 7
People are always looking for ways to make money.
It is unlikely that Monopoly or oligopoly power will stop entry forever.
Competitive forces will prevail eventually.
There are no easy answers.
Competition is valuable, but some mergers and acquisitions increase efficiency.
Some international markets may require a minimum firm size.
Not every acquisition or merger is worthy of public scrutiny, as our regulatory resources are limited.
Someone has to make those decisions.
The HHI value is 3,412.5.
The line was drawn for policy purposes by the Justice Department.
Any merger that creates an HHI value over 1,800 will be challenged by the Justice U.S. industries.
Mergers and acquisitions in industries with an HHI value of less than 1,000 won't be challenged.
The HHI can be used to decide when the government should intervene in mergers and acquisitions.
About 2,500 mergers are reviewed by the Justice Department each year.
There are still decisions to be made when intervention is signaled.
The antitrust focus of the Justice Department was changed in 1992.
Even a highly concentrated industry might be compelled to act more competitively if entry barriers were low.
The FTC and Justice Department did not consider the benefits of a merger.
The focus was on the structural threat.
The focus has shifted from unfair competition to consumer welfare since 1996.
If companies can show how a merger or acquisition will result in greater efficiency and lower costs, they will get the green light from the trustbusters in the economy tomorrow.
The price at which their output is sold is the con.
Duopoly, oligop or some less explicit form of agreement are examples of imper FLict.
Oligopolists may use price fixing agreements or price on the number of firms in an industry to establish a market price.
To maintain that to entry.
Market power is measured by the concentration ratio.
Barriers to entry are usually the result of industry output being accounted for by the largest firms.
One form of barrier is patents.
An oligopoly is a market structure in which a few firms produce all or most of a particular good or service; it's tising (product differentiation), training, and network essentially a shared monopoly.
oligopolies involve more firms than just eliminate competition.
Market failure may be caused by market power.
Firms that fail include increased prices, reduced output and highly interdependent.
Taking into account the consequences of different strategies is what game theory attempts to identify.
The demand curve shows a pattern of market behavior.
Difficult decisions in which rivals match a price cut but not a price must be made about when and how to intervene.
The Herfindahl-Hirshman index is a measure of price competition.
It is used as a structural guideline to expand the market share of the oligopolist.
If rivals match a price cut, 9.
LO3 arrangement is argued that their coordi 6.
How could the high concentration ratio assure a fair distribution of scholarship aid?
The payoff matrix can be used to decide whether or not to use it.