This topic examines how monopolists and oligopolists use their power over the market to choose the level of price and output that maximizes overall profit, with the demand behaviour of consumers as a constraint. This topic explores how monopolists and oligopolists use their market power to control quantity and set their prices above marginal cost, according to the elasticity of demand (Atlas).
In addition, this topic examines the Cournot model, which describes a market structure in which competing firms making the same homogeneous product choose a quantity to produce independently and simultaneously. This topic explores the assumptions made by the Cournot model and its results. The model produces prices and quantities that are between monopolistic (i.e. low output, high price) and competitive (high output, low price) levels (Investopedia).
Topic Learning Outcome: Appropriately utilize and interpret results of applying the principles of monopoly and oligopoly to the analysis of public policy and management problems.
Core Concepts associated with this Topic: Discriminating Monopolist; Invisible Hand; Monopoly; Natural Monopoly; Oligopoly; Ordinary Monopolist; Perfectly Competitive Market.
Harvard Kennedy School: API-101
Pindyck, Robert S. and Daniel L. Rubinfeld. Microeconomics, 8th Edition. Prentice-Hall, 2012. Chapters 12 and 13.
University of Toronto: PPG-1002
Varian, Hal R., and Jack Repcheck. Intermediate microeconomics: a modern approach. Vol. 6. New York, NY: WW Norton & Company, 2010. Chapter 24.
Carleton Unversity: PADM-5111
Frank, Robert, Ian Parker, and Igela Alger. Microeconomics and Behaviour, 5th Canadian Edition. New York: McGraw-Hill, 2013. Chapter 12.
Harvard Kennedy School: API-101
Pindyck, Robert S. and Daniel L. Rubinfeld. Microeconomics, 8th Edition. Prentice-Hall, 2012. Chapter 10, pp. 357-385, 389-392.
NYU Wagner: GP-1018
Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapters 11 (333-337), 13, and 14 (up to p. 413).
Ford School of Public Policy: Public Policy 555
Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition. Upper Saddle River: Patience-Hall, 2007. Chapters 10 - 12.
George Washington: PPPA-6003
Mankiw, N. Gregory. Principles of Microeconomics, 6th edition. Mason: South-Western College Publishers, 2011. Chapters 15 and 17.
Dixit, Avinash K., Susan Skeath, and David Reiley. Games of strategy. New York: Norton, 1999. Chapter 4.
Krugman, Paul and R. Wells, Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapters 13 and 15.
Rutgers- Economics in Public Policy
Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition. Upper Saddle River: Patience-Hall, 2007. Chapters 10 - 13.
Axelrod, Robert M.The Evolution of Cooperation. New York: Basic Books, 1984. Pages 27-54.
Sample Assessment Questions:
1.) What is an oligopoly? What is the difference between oligopoly and monopoly. Draw a diagram that illustrates how oligopolies impact price and quantity as compared to what would occur in a competitive market.
2.) What is a monopoly? Draw a diagram that illustrates how monopoly impacts price and quantity as compared to what would occur in a competitive market.
3.) What is price discrimination? What is a discriminating monopolist? How is a discriminating monopolist different from an ordinary monopolist?
4.) What is a natural monopoly? When do these occur? What tools are available for governments to promote the public good in situations of natural monopoly?
Page updated by Sean Goertzen and Ben Eisen on 16 April 2015.