George Stigler, a Nobel Laureate in Economics, Suggested That One

question 34

Essay

George Stigler, a Nobel laureate in economics, suggested that one reason why oligopolies have prices higher than competitive industries is that tacit coordination concerning output and price is much easier when there are only a few competing firms. In addition, it is easier to detect cheating on some agreed-upon price or output level. Evaluate this argument.

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Definitions:

Diseconomies of Scale

An increase in production costs as the scale of production goes up, leading to reduced efficiency.

Fixed Inputs

Resources or factors of production, such as land or capital, that remain constant regardless of the level of output or production.

Variable Inputs

Resources or inputs whose quantity can be changed in the short term to adjust the level of production.

Long-run Average Total Cost

A curve that shows the lowest average cost at which a firm can produce any given level of output in the long run, when all inputs are variable.