Non-Collusion and Oligopoly

Paper Summary:

The paper reviews the theory of oligopolistic competition from the perspective of the non-collusive, conjectural variation models of Augustin Cournot and Heinrich Freiherr von Stackleberg, within which firms compete according to output. The paper then discusses the application of these theories in the evaluation of the contention that non-collusion is the inevitable outcome of oligopoly. The paper concludes that it is wrong to assume that non-collusion is the inevitable outcome of oligopoly, since collusion can and does occur. The paper notes, however, that in most situations arising from economic competition in oligopoly markets, collusion is rarely possible.

From the Paper:

"The study of oligopolistic markets is inherently more difficult than that of monopolistic or perfectly competitive markets as it deals with the way firms interact with each other as well as with consumers. In an oligopoly, a small number of large firms dominate a particular industry and produce identical or closely substitutable products. Firms in an oligopolistic industry are interdependent, thus the central problem faced by a firm in oligopoly is that its decisions affect the price and quantity choices of its rivals; the likely response of other firms is a major factor influencing its own price and output decisions. An oligopolist therefore cannot take its demand curve as given as equilibrium output depends on enterprise behaviour. Possibilities range from the competitive outcome of the Cournot model with competing firms to the monopoly equilibrium characteristic of a cartel. Hence there is a general indeterminacy that lies at the heart of the oligopoly market structure."

Sample of Sources Used:

• Estrin, S., Laidler, D., Dietrich, M. (2008) Microeconomics: fifth edition.
• Daughety, A.F.(1989) (ed) Cournot oligopoly: characterization and applications.
• Wren, C. (2008) Microeconomic analysis lecture notes.
• Anderson, P.S., Engers, M. (1992) International Journal of Industrial Organisation 10, 127-135.
• Nicholson. W., Synder. C. (2006) Intermediate microeconomics and its applications: tenth edition.

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