Market Structure and Market Power in Oligopoly

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The analysis of different market structures, particularly with regard to welfare effects, is an important topic in most industrial organizations and in microeconomics courses. The traditional approach is to demonstrate the effects of different assumptions regarding the market structure by relying on relatively simple comparative statistics. This method inhibits a deeper theoretical discussion. The present interactive economic model is based on an extension of a typical textbook model. Our Demonstration facilitates the parallel variation of several structural parameters, like the number of firms, cost functions, etc., and the visualization of the impact on market outcomes. It can be used to develop an intuition for the effects of different assumptions regarding the market structure, like the cost functions. The Demonstration also lets you look at market power, employing the well-known Lerner index, and includes a simplified notion of market contestability, capturing the effect of potential competition on market performance.


quantity per firm demand function, market price marginal costs total cost function, average total costs profit per firm industry profit () consumer surplus total welfare () Lerner index average margin number of firms


Contributed by: Soeren C. Schwuchow and Athanassios Pitsoulis (March 2012)
Open content licensed under CC BY-NC-SA




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