Market power

Profit maximisation conditions An oligopoly maximises profits by producing where marginal revenue equals marginal costs. Ability to set price Oligopolies are price setters rather than price takers. Entry and exit Barriers to entry are high The most important barriers are: economies of scale patents access to expensive and complex technology strategic actions by incumbent firms designed to discourage or destroy nascent firms Additional sources of barriers to entry: government regulation favoring existing firms making it difficult for new firms to enter the market. Number of firms "Few" ? a "handful" of sellers Long run profits Oligopolies can retain long run abnormal profits