Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART
5 Firm Behavior and the Organization of Industry
Chapter 17 of 36 Oligopoly
Section 16 of
24
…
Figure 8 from
Chapter 15 here
…
Restated from Chapter 1, the Ten Principles of Economics:
1: people face trade-offs
2: the cost of something is what you
give up to get it
3: rational people think at the margin
4: people
respond to incentives
5: trade can
make everyone better off
6: markets
are usually a good way to organize economic activity
7:
governments can sometimes improve market outcomes
8: a
country's standard of living depends on its ability to produce goods and
services
9: prices
rise when the government issues too much money
10: society
faces a short-run trade-off between inflation and unemployment
…
One of the ten principles of economics, #7: governments can sometimes
improve market outcomes.
Cooperation among oligopolists is
undesirable from the standpoint of society as a whole.
It leads to too low production quantity
and too high prices.
Per Figure 8 from Chapter 15, oligopolies which act as monopolies create
deadweight loss areas C and P, both consumers and producers lose potential gain.
To move the allocation of resources
closer to the socially efficient outcome price and quantity policymakers try to
induce firms in an oligopoly to compete rather than cooperate.
…
One way government policy discourages
cooperation is through laws.
The Sherman Antitrust Act of 1890 elevated
agreements among oligopolists from an
unenforceable contract to a criminal conspiracy.
From text of this law:
· every contract in restraint of trade
or commerce among the several States, or with foreign nations, is declared to
be illegal
· every person who shall attempt to
monopolize any part of the trade or commerce shall be deemed guilty of a misdemeanor
…
The Clayton Act of 1914 further
strengthened antitrust law.
Included is a provision stating if a
person could prove he was damaged by an illegal arrangement to restrain trade
that person could sue and receive three times the damages he sustained.
Comments
Post a Comment