oligopolies covid 19

Oligopolies arise when there are a few firms with market power. They then compete either in price or quantity. Due to the government shutdowns, we are now seeing many small businesses being forced to close, and this may be permanent. Consider this from Wisconsin:

Survey: 35% of Wisconsin businesses could close permanently if shutdown continues for 3 months (Links to an external site.)

“More than a third of Wisconsin businesses say they will be forced to shut down permanently if the state’s economic shutdown — implemented to slow the spread of COVID-19 — persists for more than three months, according to a new survey.”

“Survey results show that 8,795 jobs were lost in the early days of the state’s Safer at Home order, which Evers announced in late-March and which closed down many nonessential businesses in Wisconsin in an effort to reduce the spread of COVID-19.

Respondents also reported losing $95 million in inventory, $126 million in income, $26.6 million in lost wages and productivity income and $404 million in other financial impacts, according to the survey.”

‘“Small businesses are being hit especially hard by the pandemic,” WEDC CEO Melissa Hughes said in a statement. “Our Wisconsin Ready effort will provide additional guidance and resources as we begin our state’s recovery efforts.”

1) Do you think these businesses were able to exert oligopoly status (consider regional impacts)?

2) Let’s extend this to the nation as a whole. The elimination of so many small businesses will likely do what for the market shares for companies like Walmart and Amazon?

3) Game theory teaches us that in many cases, the one-shot game results in a sub-optimal outcome even if it is an equilibrium. Consider a situation in which Walmart and Amazon fill the void of so many small businesses. Are we likely to see more competition in price or quantity between the two? Do you think the consumer will benefit?

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