Oligopolistic firms have been called „cats in a bag,” as mentioned in this chapter. French detergent manufacturers have decided to make each other „comfortable.” The result? A turbulent and difficult relationship. When the Wall Street Journal reported on it, he wrote: „According to a statement from a Henkel director at the [French anti-trust commission], detergent manufacturers wanted to „limit the intensity of competition between them and clean up the market.” Yet by the early 1990s, a price war had broken out among them. During the more than four-hour meetings of soap executives, companies set up complex pricing structures. „One executive remembered chaotic meetings when each party tried to figure out how the other had bended the rules.” Like many cartels, the soap cartel dissolved because each member was trying to maximize their individual profits. (1) If a company increases the price, P > P, other companies will not follow A numerical example shows the result of the Bertrand model, which is a Nash balance. Suppose two companies sell a homogeneous product and compete by choosing prices at the same time, while the other company`s prices remain constant. Please indicate the Qd`s request function – 50 – P and the costs are summarized by MC1 – MC2 – 5. Assuming both companies are aware of the payments, what is the likely outcome in this case? In a competitive industry, free entry translates into prices corresponding to marginal costs (P-MC). In the case of the digital example, PC 7. If this competitive price is replaced by the reverse demand equation, 7 – 40 – Q or Qc – 33. Earnings are calculated by resolution (P – MC) Q or c – (7 – 7) Q – 0. The competitive solution is indicated in the equation (5.2).
A combination of barriers to entry that create monopolies and product differentiation that characterizes monopoly competition can create the framework for an oligopoly. For example, when a government grants a patent to a company for an invention, it can create a monopoly.