By the end of this section, you will be able to:

• Explain why and how oligopolies exist

• Contrast collusion and competition

•

Interpret and analyze the prisoner’s dilemma diagram

• Evaluate the tradeoffs of imperfect competition

Many purchases that individuals make at the retail level are produced in markets that are neither perfectly

competitive, monopolies, nor monopolistically competitive. Rather, they are oligopolies. Oligopoly arises when

a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and

include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag.

They can either scratch each other to pieces or cuddle up and get comfortable with one another. If oligopolists

compete hard, they may end up acting very much like perfect competitors, driving down costs and leading to
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