Microeconomics: Models Of Oligopoly Essay

Question:

Discuss about the Microeconomics for Models of Oligopoly.

Answer:

Introduction

An oligopolistic market can be described as a market where there is limited competition and there is smaller number of buyers and sellers in the market. On the other hand, the monopolistic market is one there is only one seller who the price makers are thus causing economic harm (Fudenberg and Tirole 2013).

1. The United States have a number of regulations such as the Sherman Act of 1890, Clayton Act of 1914 and the Federal Trade Commission Act of 1914 to protect the consumers and allow perfect competition in the market. However, the government of the nation fails to look at the oligopoly issues. In an oligopolistic market, there are firms that abuse their power such as the airlines, grocery sales, music and other industries. The oligopolistic market causes a restriction on the output as the output is small and prices are high in comparison to perfect competition. The price exceeds the average cost, which causes the consumer to pay high in the oligopoly market (Brito, Pereira and Vareda 2013). The organisation further fails to build the optimum scales of economies.
2. The author’s view regarding the increased overlooking of the oligopoly market is agreed since there arises a problem where the consumers are exploited and charged with heavy price. It is therefore not acceptable for the industries to allow free pass in the market as the competitive nature of the market is harmed. The competitive nature of the market is spoiled and the disequilibrium is reached that harms the overall economy. Therefore, the government of the economy needs to develop laws and regulation against the oligopoly that will restrict the exploitation of the customers by charging price at the competitive level.

References

Brito, D., Pereira, P. and Vareda, J., 2013. Welfare impact of the information asymmetry between managers and owners under oligopoly. mimeo.

Fudenberg, D. and Tirole, J., 2013. Dynamic models of oligopoly. Taylor & Francis.

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