Question

Some analysts consider oligopolies to be potentially less efficient than monopoly firms because at least monopoly firms tend to be regulated. Arguments in favor of a more benign view of oligopolies include

a. Oligopolies can be kept in line by foreign competition.
b. Oligopolies are self-regulating.
c. Oligopolistic industries may promote technological progress.
d. Oligopolies may engage in limit pricing to keep out potential entrants.

Answer 1

Oligopolies are market structures characterized by a small number of large firms dominating the industry, and they have mutual interdependence. Arguments in favor of a more benign view of oligopolies include: foreign competition, self-regulation, promotion of technological progress, and engaging in limit pricing to keep out potential entrants.

Step-by-step explanation:

Oligopolies are market structures characterized by a small number of large firms dominating the industry. Unlike perfect competition or monopolies, oligopolies have mutual interdependence where firms' decisions regarding output, price, and advertising depend on each other. Arguments in favor of a more benign view of oligopolies include:

1. Oligopolies can be kept in line by foreign competition: When foreign firms enter the market, competition increases, which can prevent oligopolies from colluding and exploiting consumers.
2. Oligopolies are self-regulating: Due to the mutual interdependence, oligopolistic firms monitor each other's actions and adjust their strategies accordingly, leading to self-regulation.
3. Oligopolistic industries may promote technological progress: Competition among oligopoly firms often drives them to invest in research and development, leading to innovation and technological progress.
4. Oligopolies may engage in limit pricing to keep out potential entrants: Oligopolistic firms may set prices low enough to deter new entrants from entering the market, ensuring their dominance.

Answer 2

Oligopolies are markets where a few firms dominate, leading to competition-collusion dynamics. Arguments in favor of oligopolies suggest they can foster innovation and be kept in check by foreign competition or self-regulation through limit pricing. Option A is the correct answer.

Step-by-step explanation:

Oligopolies are market structures characterized by a small number of large firms dominating the sales in an industry. They are distinct from perfect competition, monopolies, and monopolistically competitive markets. Oligopolies can lead to scenarios where firms compete vigorously, acting like perfect competitors, while at other times they may collude, behaving more like a monopoly to drive up prices and profits.

Such markets are known for mutual interdependence, where decisions on output, price, and advertising by one firm significantly impact others. The argument that oligopolies might be less efficient than monopolies centers around the lack of regulatory oversight that monopolies may face, which oligopolies may evade. Despite this, there are arguments in favor of oligopolies, suggesting they may still benefit the market and consumers.

• Oligopolies may face competition from foreign firms, keeping them in check and fostering competitive practices.
• These markets have the potential for promoting technological innovation due to the competition within a concentrated market.
• Through strategies like limit pricing, oligopolists may prevent new entrants, potentially creating stability within the market.

Overall, while oligopolies face criticism for potential inefficiencies, they also possess dynamics that can contribute to market vigor and innovation.