Suggested References
The following texts provide comprehensive treatments of market structure and oligopoly.
Besanko, D., D. Dranove, M. Shanley, and S. Schaefer. Economics of Strategy.New York: John Wiley
& Sons, 2006. (Chapters 7, 11, and 12 examine industry structure and the Five-Forces model. Chap-
ter 8 discusses strategic commitment.)
Brock, J. (Ed). The Structure of American Industry.Upper Saddle River, NJ: Prentice-Hall, 2008.
Carlton, D. W., and J. M. Perloff. Modern Industrial Organization.Reading, MA: Addison-Wesley,
2004.
Dixit, A., and S. Skeath. Games of Strategy.New York: W. W. Norton, 2004.
Shepherd, J. M., and W. G. Shepherd. The Economics of Industrial Organization.Upper Saddle River,
NJ: Prentice-Hall, 2008.
Tirole, J. The Theory of Industrial Organization. Chapters 3, 5, and 7. Cambridge, MA: MIT Press,
1989.
McGahan, A. M., and M. E. Porter, “How Much Does Industry Matter Really?” Strategic Manage-
ment Journal18 (Summer 1997): 167–185.
The preceding article provides a statistical analysis of firm profitability. It finds that variations in
profitability depend on firm characteristics and strategies (accounting for 32 percent of profit
variations), market structure (19 percent), other factors (7 percent) and random fluctuations
(42 percent).
Powerful and intriguing analyses of the prisoner’s dilemma include
Axelrod, R. M. The Complexity of Cooperation. Princeton, NJ: Princeton University Press, 1997.
Axelrod, R. M. The Evolution of Cooperation. New York: Basic Books, 1985.
Fine articles on advertising include:
Greuner, M. R., D. R. Kamerschen, and P. G. Klein. “The Competitive Effects of Advertising in the
US Automobile Industry, 1970–94.” International Journal of the Economics of Business7 (2000):
245–261.
Silk, A. J., L. R. Klein, and E. R. Berndt. “The Emerging Position of the Internet as an Advertising
Medium.” Netnomics3 (2001): 129–148.
Concentration ratios gathered by the U.S. Bureau of the Census are available online at: http://www.
census.gov/epcd/www/concentration.html.390 Chapter 9 OligopolyCHECK STATION
ANSWERS- Firm 1’s optimal reaction function remains Q 1 12 .5Q 2. To determine
its optimal output, firm 2 sets marginal revenue equal to 9: 30 Q 1
2Q 2 9; therefore, Q 2 10.5 .5Q 1. Solving these equations
simultaneously, we find Q 1 9 and Q 2 6. In equilibrium, the lower-
cost firm claims a majority market share. - The kink occurs at Q 10. At outputs less than 10, MR 30 2Q. For
outputs greater than 10, MR 36 3.2Q. Evaluating each expression
at Q 10, we see that MR drops from 10 to 4. As long as MC is
between 10 and 4, the firm’s optimal output is 10 and its optimal price
is 20.
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