Oligopoly Theory Made Simple

Abstract

Oligopoly theory lies at the heart of industrial organisation (IO) since its object of study is the interdependence of firms. Much of traditional microeconomics presumes that firms act as passive price-takers, and thus avoids the complex issues involved in understanding firms’ behaviour in an interdependent environment. As such, recent developments in oligopoly theory cover most or all areas of theoretical IO, and particularly the ‘new’ IO. This survey is therefore very selective in the material it surveys: the goal is to present some of the basic or ‘core’ results of oligopoly theory that thave a general relevance to IO.

The material of this chapter is based on MSc lectures given at Birkbeck over the period 1985–86. I would like to thank students for their comments and reactions from which I learnt a lot. I would also like to thank Ben Lockwood for invaluable comments as well as Bruce Lyons, Steve Davies and the editors. Errors, alas, remain my own.