Discuss the pros and cons of oligopoly from the perspective of U.S. society.
What will be an ideal response?
Oligopoly, especially collusive oligopoly, results in goods and services that are
under produced and overpriced. It fails the conditions for allocative efficiency (P = MC)
and productive efficiency (P = minimum ATC) because prices typically exceed both MC
and ATC. In addition, oligopolists actively try to erect barriers to entry in their industries.
This limits competition and consumer choices. However, there are factors that render
oligopoly somewhat more competitive in the United States. One of them is the effect of
foreign competition. Also, oligopolists earning large profits often spend this money on
research and development, as evidenced by patent filings. This spending benefits
society through technological progress, improved products, and better and less costly
production processes. Consumers also benefit from lower prices (even if only
temporarily) when oligopolists practice limit pricing to deter market entry by newcomers.
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