Theory of Oligopoly

George Stigler, Nov 05, 2010

No one has the right, and few the ability, to lure economists into reading another article on oligopoly theory without some advance indication of its alleged contribution. The present paper accepts the hypothesis that oligopolists wish to collude to maximize joint profits. It seeks to reconcile this wish with facts, such as that collusion is impossible for many firms and collusion is much more effective in some circumstances than in others. The reconciliation is found in the problem of policing a collusive agreement, which proves to be a problem in the theory of information. A considerable number of implications of the theory are discussed, and a modest amount of empirical evidence is presented.

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