Chapter 14.
An oligopoly is an industry with only a small number of producers. A producer in such an industry is
known as an oligopolist.
A firm in such an industry is known as an oligopolist.
The competition in an oligopoly isn’t perfect. Like monopolists, each of these firms had some market
power.
A situation in which firms compete but also possess market power which enables them to affect market
prices is known as imperfect competition. There are two important forms of imperfect competition-
oligopoly and monopolistic competition.
The reason why most oligopolies come to existence is similar to monopolies-increasing returns to scale.
When these effects are strong, they lead to monopoly; when they are moderately strong, they lead to
an oligopoly.
The Herfindahl-Hirschman index, the sum of the squares of the market shares of each firm in the
industry, is a widely used measure of industry concentration. An HHI below indicates 1500 indicates an
un-concentrated industry. An HHI between 1500 and 2500 indicates moderate competition while and
