The article “Pushing the Limits” informs readers about the worries of America’s antitrust regulators, regarding the planned merges of an increasing number of big companies. Dow Chemical and DUPoint, for example, America’s biggest and oldest chemical firms are now interested in merging their companies to create one 130 billion dollar giant. These two firms are examples of oligopolists in their market. The reason why politicians and antitrust regulators want to stop oligopolists like these from merging is to prevent them from taking up an even larger market share and gain more market power — which could eventually result in them becoming monopolies. When comparing the market shares of large companies between the years 1997 and 2007, the market
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Politicians and regulators therefore have to keep a close eye on oligopolists and make sure that they don’t become to powerful. In some cases, oligopolists try to further increase their profits by engaging in cooperative behaviour like collusion. Oligopolists sometimes try to make deals to purposely restrict their supply and increase their prices. These type of collaborations are illegal and oligopolists therefore turn to tacit collusion. This means that they make these agreements without signing any formal …show more content…
Tacit collusion is actually the reason why oligopolies have kinked demand curves. On page 401 in Paul Krugman and Robin Wells book “Microeconomics”, the graph illustrates how a firms demand curve to the left of the tacit collusion outcome is more elastic, and the part to the right of the outcome is more inelastic. When the demand is elastic, it means that the demand is sensitive to changes in prices, and when it is inelastic it is relatively insensitive to changes in prices. In this example, the graph shows that when a firm lowers their price and increases their output, the other firms will see this as non-cooperative behaviour and they will do the same. Increasing output will, therefore, only lead to a small increase in profits. But if the firm instead restricts its output and raises its price, the other firms will instead keep their price and output to steal consumers, which will lead to a fall in sales. This shows that there is an interdependence between oligopolistic firms, hence the firms profits often depend on its competitors
Politicians and regulators therefore have to keep a close eye on oligopolists and make sure that they don’t become to powerful. In some cases, oligopolists try to further increase their profits by engaging in cooperative behaviour like collusion. Oligopolists sometimes try to make deals to purposely restrict their supply and increase their prices. These type of collaborations are illegal and oligopolists therefore turn to tacit collusion. This means that they make these agreements without signing any formal …show more content…
Tacit collusion is actually the reason why oligopolies have kinked demand curves. On page 401 in Paul Krugman and Robin Wells book “Microeconomics”, the graph illustrates how a firms demand curve to the left of the tacit collusion outcome is more elastic, and the part to the right of the outcome is more inelastic. When the demand is elastic, it means that the demand is sensitive to changes in prices, and when it is inelastic it is relatively insensitive to changes in prices. In this example, the graph shows that when a firm lowers their price and increases their output, the other firms will see this as non-cooperative behaviour and they will do the same. Increasing output will, therefore, only lead to a small increase in profits. But if the firm instead restricts its output and raises its price, the other firms will instead keep their price and output to steal consumers, which will lead to a fall in sales. This shows that there is an interdependence between oligopolistic firms, hence the firms profits often depend on its competitors