and thus increase its profits.

However, economists and business owners have also long suspected that much of the advertising may only offset

other advertising. Economist A. C. Pigou wrote the following back in 1920 in his book, The Economics of Welfare:

It may happen that expenditures on advertisement made by competing monopolists [that is, what we now

call monopolistic competitors] will simply neutralise one another, and leave the industrial position exactly

as it would have been if neither had expended anything. For, clearly, if each of two rivals makes equal

efforts to attract the favour of the public away from the other, the total result is the same as it would have

been if neither had made any effort at all.

10.2 Oligopoly

LEARNING OBJECTIVES

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
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