Introduction

Having looked at perfect competition and its antipode, monopoly, it is about time to turn to more relevant markets. Most of the products that we buy are manufactured by firms that have only few competitors. For example, there are only a handful of different brands of automobiles, household detergents, breakfast cereals, and even canned tomato soup, to name just a few. Typically, in most markets a small number of suppliers compete for a large number of potential buyers.

A market environment that has few suppliers but many buyers is called an oligopoly. In such an environment, each buyer takes market conditions as given, but each seller is aware that his actions have a significant impact upon his rivals' payoffs, and vice versa.

Apart from large firms whose products are traded all over the entire economy, even small firms are often part of oligopolies. Many markets are geographically localized, composed of more or less insulated market areas. Local banks, supermarkets, bars, and restaurants in small communities or on a university campus are a case in point. Most people live in small towns, suburbs, or villages.