Oligopoly

• Sweezy's Model of Kinked Demand Curve

– Externalities causing private and social costs and/or benefits to diverge

– Abuse of monopoly power– Market failure due to oligopoly– Government Intervention

Market Failures and Structures

fig

Market failure due to oligopoly: The prisoners' dilemmaMarket failure due to oligopoly: The prisoners' dilemma

Not confess Confess

Notconfess

Confess

Amanda's alternatives

Nigel'salternatives

A B

C D

Each gets1 year

Each gets3 years

Nigel gets3 months

Amanda gets10 years

Nigel gets10 years

Amanda gets3 months

Price Regulations

• Cost of service regulation (including direct price setting and rate of return)

• Price-cap regulation

• Performance based regulation

• Franchise regulation

• Yardstick regulation