Jenny Moody

                                                                                                            Econ 12

                                                                                                            Extra Credit

                                                                                                            February 23, 2005


Goldilocks and the Three Oligopolists


            Once upon a time, there was a little girl named Goldilocks.  She went for a walk in the forest.  Pretty soon, she came upon a house with a sign on the door reading “The Three Oligopolists”.  She knocked, and when no one answered, she walked right in. 

At the table in the kitchen, there were three bowls of porridge.  Each had a small price tag attached to the corresponding spoon.  Bowl number one would cost her $5.00, bowl number two would cost $4.00, and bowl number three was marked at $7.00.  There was also a sign that read, “Don’t know which porridge to choose?  Give them each a try!”

Goldilocks was really hungry and definitely didn’t know which bowl to choose.  She tasted the porridge from the first bowl, which had raisins and granola mixed through it.  "This porridge is too hot and too chewy!" she exclaimed.  So, she tasted the porridge from the second bowl, which was thin and soupy.  "This porridge is too cold and too watery," she said.  So, she tasted the last bowl of porridge.  "Ahhh, this porridge is just right," she said happily.

Little did she know, Goldilocks was being watched from the other room.  The Three Oligopolists, Moe, Larry, and Curly, were discussing whether or not they should form a porridge cartel and earn monopoly profits.  Larry reminded his fellow oligopolists that although they would love to form a cartel, it isn’t possible.  “According to the antitrust laws, we are prohibited from making any explicit agreements amongst ourselves,” said Larry.  Moe agreed, “Good point, Larry.  How would we divide the profits?  The three of us could never agree on something like that.”

After the Three Oligopolists realize that they are truly competing against each other for Goldilock’s big choice, they disperse to their rooms.  Larry decides, after taking into consideration Goldilocks’ reaction, to change his porridge to include less raisins and granola.  Moe decides to use fewer liquids in his porridge because Goldilocks thought it was too soupy.  Both Larry and Moe think about raising their prices a bit to compete with Curly.  However, Curly, realizing that he might have priced his porridge too high thinks about making some price cuts.  At this point, Curly has the market power to raise prices, which is exactly what Moe and Larry are doing. 

Once Goldilocks tries the new set of porridge bowls, her viewpoints change quite a bit.  “This first bowl is a lot less chewy!” said Goldilocks.  “And the second bowl is much thicker than before.”  “This third bowl hasn’t changed anything but its price and that decrease is in my favor!”  However, when Curly decided to slash his price because of his competition, Moe and Larry informed Goldilocks of Curly’s predatory pricing.  “His price cuts were intended to drive us straight out of the market!  As soon as he regained your favor, he was going to raise his price again” said Larry and Moe.  This news saddened Goldilocks.  She just wanted for the Three Oligopolists to get along.  She didn’t want them competing against each other for her decision. 

Goldilocks then decided to buy a bowl of porridge from Moe, Larry, and Curly.  Even though one producer didn’t come out ahead of the other two, all three oligopolists learned a lot about the rules and regulations of an oligopolistic market.  After finishing all three bowls, however, Goldilocks became really tired, so she went upstairs to the bedroom.  She lay down in the first bed, but it was too hard and would cost her 25 cents a minute.  Then she lay in the second bed, but it was too soft and would cost her 35 cents a minute.  Lastly, she lay down in the third bed and it was just right.  However, the last bed would cost her a dollar a minute to sleep in.  Just as she fell asleep in bed number three, Moe and Larry were already privately considering what modifications they could make to each of their beds in order to compete with Curly!