Courses : Intermediate Microeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion New Theory About Oligopoly The new theory of oligopoly is a view that sees that oligopolies in fact have different characteristics from what was previously thought, namely they do not always compete strictly with each other and are often involved in cooperation, such as sharing technology and resources, and carrying out joint practices in influencing markets, such as coordinated pricing and synchronized advertising strategies. In this theory, entrepreneurs are assumed to behave rationally and try to maximize their long-term profits by making decisions that take into account the actions of their competitors. The new theory of oligopoly states that in an oligopoly industry, collusion does not always occur and players do not always act selfishly. There are many factors that can influence the behavior of companies in an oligopoly, such as the complexity of the business environment, the level of uncertainty, and psychological factors. Therefore, this theory is more likely to adopt an empirical approach that looks at the behavior of companies on a case-by-case basis, rather than building an abstract model. This theory recognizes the diversity in corporate behavior, so it does not only emphasize selfish or collusive behavior. In addition, this theory also emphasizes the importance of non-economic factors in shaping company behavior. In the new theory of oligopoly, there are several characteristics that distinguish it from other oligopoly theories, including: 1. Interdependence between firms: In an oligopoly, each firm is dependent on the decisions made by the other firms. This happens because they compete in a limited market, so that the decisions taken by one company will affect the decisions taken by other companies. 2. Uncertainty: Oligopolies are often dominated by uncertainty, both in terms of demand and production costs. This uncertainty makes it difficult to make the right decisions, so companies often do trial and error in determining marketing strategies. 3. There is interaction between companies: Companies that are in an oligopoly market interact and communicate with each other. This interaction can be in the form of cooperation or competition that influences the decisions taken by each company. 4. There is a change in strategy: Oligopolies often experience quite rapid changes in strategy. This is because each company is trying to get the maximum profit in this limited market. 5. The influence of government policies: Government policies greatly affect oligopoly market conditions. The government can provide regulations or policies that harm or benefit companies in the oligopoly market. Therefore, companies in an oligopoly market often try to influence government policy in various ways. The New Theory of Oligopoly combines several aspects of the previous theory of oligopoly and adds several new elements. This theory emphasizes that oligopolies can earn greater profits through cooperation than by competing aggressively. The features of the new theory of oligopoly include: 1. Focus on cooperation between oligopoly firms to maximize profits, either through explicit or implicit collusion. 2. Emphasizing the importance of product differentiation and branding to create consumer loyalty and reduce the intensity of competition. 3. Recognizing that there are technological or cost advantages among firms may allow one or more firms to take over market share from others. 4. Recognizing that government regulations and the influence of external forces such as technology and policy changes can affect the behavior of oligopoly firms. The new theory of oligopoly suggests that in some situations, cooperation between oligopolists may be more profitable than competing directly. Therefore, several companies may tend to cooperate and divide the market rather than compete aggressively with each other. The New Theory of Oligopoly is a development of the traditional oligopoly theory and tries to explain the behavior of firms in facing competition. This theory emphasizes that oligopoly firms tend to focus on long-term strategy and consider competitors' reactions in making decisions. Some of the characteristics of the new theory of oligopoly include: 1. Oligopoly firms are mutually dependent on each other in making decisions. The actions of one company can affect the profits of its competitors. 2. There is limited information in an oligopoly market, so that companies cannot fully understand market conditions. 3. Oligopoly firms tend to adopt long-term strategies, for example by investing in research and development. 4. Competition in an oligopoly market is dynamic and can change with changes in government policies, technological developments, and changes in consumer preferences. 5. There is potential for cooperation between oligopoly companies (collusion) to limit competition and increase profits. However, this kind of cooperation is usually hampered by distrust and suspicion between companies.