What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits?

In an oligopoly market structure, there are a few large firms that dominate the market and produce similar goods or services. These firms have a high degree of market power, which means they have control over price and other factors affecting the market. One of the primary features of an oligopoly market is that each firm's actions have a noticeable impact on the competitors' behavior.

A monopoly market structure is characterized by a single firm that controls the entire market for a product or service. The monopolist can set high prices, restrict output, and earn maximum profits. In contrast, an oligopoly consists of a few large firms, and their pricing decisions depend on the reactions and strategies of their competitors. Although oligopolists have market power, they cannot maximize their profits like a monopolist, due to competition and interdependence among firms.

There are several factors that prevent oligopolists from acting together as a monopolist and earning the highest possible level of profits: 1. Legal Restrictions: Anti-trust laws and regulations prevent the formation of cartels or collusive behavior between competing firms. Such laws aim to maintain fair competition and prevent price-fixing, market sharing, or any other practices that would lead to monopolistic behavior. 2. Game Theory and Competitive Strategies: Each firm in an oligopoly is using different strategies to outperform their competitors, which leads to a situation where each one is trying to predict the other's behavior. Firms may follow a tit-for-tat strategy, where they match their competitors' moves, benefiting from short-term gains but potentially damaging long-term profitability. 3. Non-Collusive Oligopoly: Firms in an oligopoly might compete fiercely and do not collude or cooperate to fix prices, production levels, or other market factors. This type of market structure prevents firms from acting like a monopolist and earning maximum profits. 4. Price Wars and Competitive Rivalry: Intense competition may lead to firms lowering their prices to maintain or increase their market share. Price wars can significantly reduce profits and discourage collusion between firms.

In conclusion, while oligopolists have some market power and can influence price and output levels, they are prevented from acting together as a monopolist and earning the highest possible level of profits due to factors such as legal restrictions, game theory strategies, non-collusive behavior, and price wars/competitive rivalry. These factors ensure a certain level of competition persists, preventing monopolistic behavior in oligopoly markets.