Oligopoly

This chapter explores oligopoly, a market structure with few firms whose strategic decisions are interdependent. The discussion begins with models of quantity competition, notably Cournot and Stackelberg, which illustrate how firms anticipate rivals’ output when making decisions. Price competition is examined through the Bertrand model, showing how intense price rivalry may drive profits to competitive levels despite high concentration. The chapter also investigates collusion, where firms cooperate to restrict competition and raise profits. Real-world examples of cartels are presented, alongside theoretical models of collusive stability and enforcement. These cases reveal how oligopolistic firms often face the dilemma of balancing rivalry with cooperation. Welfare implications are highlighted, as oligopoly may yield efficient outcomes under competition but harmful ones under collusion or price-fixing. The chapter concludes with exercises and key questions that encourage applying theoretical tools to practical cases. Students gain the ability to critically assess oligopolistic behavior and the importance of regulatory responses.