Students can define oligopoly, calculate concentration, and still miss its central tension. Every strong plan contains an expectation about rivals. An oligopoly classroom simulation makes that interdependence unavoidable. When teams set price, commit capacity, enter a market, and observe the response, market structure becomes a decision rather than a diagram.
The instructor’s task is to keep the activity from collapsing into "everyone lowered price." Build the lesson around predictions, commitments, and counterfactuals. Ask students to explain how their expectations about rivals shaped the choice, then test those expectations against market and financial evidence.
Define oligopoly as behavior as well as structure
Begin with the structural features. A small number of firms with outsized market influence, barriers to entry, and products that may be differentiated. Then emphasize behavior. A firm in an oligopoly recognizes that its price, capacity, quality, or entry decision may change what rivals do next.
Contrast this with the simplified price-taking firm and the monopoly. The oligopolist does not choose in isolation. Even if all companies start with the same information, their expectations can produce different strategies and outcomes.
Federal Reserve Education’s "Teaching Market Structures with Gum" activity has students act as firms under perfect competition, monopoly, competitive oligopoly, and collusive oligopoly. A multi-Round simulation can extend that comparison by making commitments persistent and by retaining evidence about adaptation over time.
Set a decision problem that creates interdependence
Choose a market where entry and capacity cannot be costlessly reversed. EV charging networks are useful because a company can compete on price and reliability while deciding whether to install capacity or enter another local market. Expansion can increase reach, but it requires cash and may intensify rivalry.
Give teams a short planning memo with four prompts.
- Which local market will you prioritize?
- What do you expect the closest rival to do?
- Which decision is reversible next Round, and which is a commitment?
- What evidence would make you change course?
The memo stops students from treating every choice as an independent slider. It also gives you a record of expectations to compare with the result.
Separate price, capacity, and entry
Students often treat expansion as an unqualified sign of success. Ask them to distinguish three decisions.
Price affects contribution per unit and competitive attractiveness in the current market. It is usually adjustable in a later Round. Capacity determines how much demand can be served and may require a durable investment. Entry opens access to another market but can carry a sunk cost that is not recovered on exit.
Create a board with one row for each decision and columns for timing, reversibility, cash effect, and likely rival response. Have teams complete it before the first major commitment. This makes sunk cost and strategic commitment visible before students see results.
When a company later considers exit, ask whether the original entry cost should affect the decision. The forward-looking answer depends on avoidable future costs and benefits, not a desire to "earn back" a sunk expenditure.
Run the simulation in four phases
Phase 1: Establish local rivalry
Use the first Rounds to observe price, available sessions or capacity use, reliability, units sold, profit, and Market Share. Ask teams to identify their closest strategic rival based on decisions, not only rank.
Phase 2: Make entry and capacity commitments
Before opening entry or expansion decisions, require the planning memo. Teams should state the expected demand opportunity, sunk commitment, financing effect, and rival response. Process the Round without revealing other teams’ unpublished decisions.
Phase 3: Introduce regulation or changed conditions
Use the scenario’s disclosed events or constraints. Ask whether regulation changes price, output, entry, and exit incentives. Students should compare the effect on profitability with the effect on concentration. The two do not have to move together.
Phase 4: Evaluate the resulting industry structure
Review the complete pattern rather than the final Round alone. Which commitments persisted? Which firms exited? Did rivalry stabilize, intensify, or vary by local market? Use Market Share volatility and profitability as evidence, not as automatic labels for a market structure.
Teach concentration without turning it into a verdict
If your simulation provides market shares, students can calculate a concentration ratio or Herfindahl-Hirschman Index for a defined market. The HHI is the sum of squared firm shares when shares are expressed as percentages. Its value depends on the market definition, so calculate it separately for local markets if the data permits.
Then ask what the index does and does not show. It summarizes the distribution of shares. It does not by itself prove collusion, measure entry barriers, or explain whether firms are profitable. A concentrated market can still show vigorous strategic rivalry, and a less concentrated market can contain weak competitors.
Do not import current legal enforcement thresholds unless that is an explicit part of your course and you verify the current authority. For this lesson, the index is a descriptive tool for comparing simulated structures across Rounds.
Scroll sideways inside the graph and table to see all the data. You can also focus it and use the left and right arrow keys.
Use these fictional shares for four Team Companies in the same local market over two Rounds. Define Market Share by units sold, keep the market boundary unchanged, and include every company serving that market. This is a calculation exercise, not ClassTycoon output.
| Company | Round 1 share | Share squared | Round 2 share | Share squared |
|---|---|---|---|---|
| A | 40% | 1600 | 55% | 3025 |
| B | 30% | 900 | 25% | 625 |
| C | 20% | 400 | 15% | 225 |
| D | 10% | 100 | 5% | 25 |
| Total | 100% | 3000 | 100% | 3900 |
Square each percentage number, then add the results. HHI rises from 3,000 to 3,900, an increase of 900 points. The index alone does not explain the change or establish anything about agreements, profit, or entry barriers. Inspect decisions and market conditions before proposing an explanation.
Address collusion carefully
An oligopoly lesson often prompts students to propose coordination. Establish the classroom rule before play. Team Companies make decisions independently and do not exchange private plans unless the activity explicitly assigns a communication phase. This preserves the decision environment and avoids rewarding off-platform agreements.
You can still teach collusion as a counterfactual. After the Round, ask what a coordinated output or price plan might attempt, why each firm would have an incentive to deviate, and what evidence would distinguish parallel response from explicit agreement. The discussion becomes richer when students have just experienced the temptation to undercut or expand.
Frame the exercise as economic analysis, not legal advice. Real competition law varies by jurisdiction and changes over time.
Debrief strategic interdependence with a decision tree
Choose one focal Team Company and reconstruct its reasoning.
- What did it believe its rival would do?
- What decision followed from that belief?
- What did the rival actually do?
- Which output changed, whether units, Market Share, profit, capacity use, or cash?
- What is the best response now, and what response might that provoke?
Then compare a company that made a durable commitment with one that retained flexibility. Ask under which market condition each approach would be preferable. This prevents the class from declaring the final leader’s strategy universally correct.
Useful whole-class prompts include the following.
- Which decision changed a rival’s incentives rather than only your own output?
- Where did expansion increase Market Share but reduce profit?
- Which cost was sunk, and how should it affect the exit decision?
- Did regulation change concentration, profitability, or both?
- What evidence suggests strategic adaptation across Rounds?
Assess reasoning rather than the final structure
Ask each team to submit a one-page industry memo. It should define the relevant market, identify one rival, explain one commitment, show two Round measures, and recommend entry, stay, or exit. Require a counterargument stating what rival action would make the recommendation wrong.
Grade the accuracy of the market-structure concepts, use of evidence, and conditional reasoning. Do not grade teams on whether the simulated industry became concentrated or whether their Team Company finished first. Those outcomes emerge collectively.
Use EV Charging Networks as the applied context
Industry Dynamics: EV Charging Networks is ClassTycoon’s eight-Round Industrial Organization scenario, designed for about 80 minutes. Team Companies set price per kWh, choose available sessions, invest in reliability and capacity, and enter or exit specified local markets as decisions unlock. The context makes sunk cost, commitment, regulation, concentration, and profit visible in one market story.
EV Charging Networks is available with Pro. Review access on Pricing or compare it with the full simulation library. In the debrief, keep returning to the question at the heart of oligopoly. How did each competitor change what the others chose to do?
Frequently asked questions
How many firms do I need for an oligopoly activity?
The conceptual requirement is a small number of strategically important competitors, not a single universal count. Team Companies can represent firms while several students share each company.
Should students communicate during the simulation?
Keep decisions independent unless communication is an explicit, bounded part of the lesson. State the rule in advance and discuss coordination as a debrief counterfactual.
Is Market Share enough to evaluate an entry decision?
No. Include sunk entry cost, future avoidable costs, capacity use, profit, cash, and the likely rival response. Share without sustainable economics can make an expansion look stronger than it is.