MODULE 66

Oligopoly in Practice

In this Module, you will learn to:

• Discuss the legal constraints of antitrust policy

• Explain how repeated interactions among oligopolists can result in collusion in the absence of any formal agreement

• Explain the cause and effect of price wars, product differentiation, price leadership, and nonprice competition

• Describe the importance of oligopoly in the real world

Previously, we described the cartel known as “Vitamins, Inc.,” which effectively sustained collusion for many years. Fortunately, the conspiratorial dealings of the vitamin makers were not the norm. But how do oligopolies usually work in practice? The answer depends both on the legal framework that limits what firms can do and on the underlying ability of firms in a given industry to cooperate without formal agreements. In this module we will explore a variety of oligopoly behaviors and how antitrust laws limit oligopolists’ attempts to maximize their profits.