Oligopolies would like to act like monopolies, but self-interest drives them closer to competition. Thus, oligopolies can end up looking either more like monopolies or more like competitive markets, depending on the number of firms in the oligopoly and how cooperative the firms are. The story of the prisoners’ dilemma shows why oligopolies can fail to maintain cooperation, even when cooperation is in their best interest.
Policymakers regulate the behavior of oligopolists through the antitrust jaws. The proper scope of these laws is the subject of ongoing controversy. Although price fixing among competing firms clearly reduces economic welfare and should be illegal, some business practi ces that appear to reduce competition may have legitimate if subtle purposes. As a result, policymakers need to be careful when they use the substantial powers of the antitrust laws to place limits on firm behavior.
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