10.1 Oligopoly

Question 1

deinfe oligopoly

Answer 1

A market structure that is characterised by a small number of large firms that are interdependent in their decision making.

Question 2

characteristics of

Answer 2

1. Number of Sellers:
   • few large sellers
   o two large firms (duopoly); lots of small firms + one large dominant firm; four/ five firms
2. Type of Products:
   • either homogenous (same) or differentiated products. –
3. Barriers to Entry:

Question 3

what are barriers to entry for oligopo

Answer 3

a. Economies of Scale:
- If existing firms already producing a level of output that is at the minimum efficient scale, then difficult for potential producers to enter the market as they would have to be able to sell a high level of output to be competitive.
b. Ownership of a key input:
- Similar to monopoly (e.g. de Beers and diamonds)
c. Government-imposed barriers:
- Example: licensing requirements, tariffs and quotas on imports

Question 4

define game theory

Answer 4

Models that analyse an oligopoly firm’s behaviour as a series of strategic moves which take into account rivals actions.

Question 5

3 things game theorises have

Answer 5

1. Rules: the initial conditions governing conduct
   • e.g. No collusion
2. Strategies: the decision options which the player has
   •
3. Payoffs: what each player stands to gain or lose when certain strategies are followed.

Question 6

how to work out from matrix

Answer 6

• place self in position of one

- what would revceive depending on what other one does

Question 7

what is dominant strategy equiblirum strategy

Answer 7

plan regardless of what other does

Question 8

what is nash equilibrium

Answer 8

A set of strategies, one for each player, where each player’s strategy is their best choice given the other player’s strategy.

Question 9

what are two long term options for prisoners

Answer 9

1. Using signalling as an enforcement mechanism

2. Tit-for-tat:

Question 10

whats a solution to make threat credible

Answer 10

position yourself as first desision maker

Question 11

what happens to price if firms engage in collusion

Answer 11

industry output is lower and price is higher compared to firms in perfectly competitive market.

Question 12

why do they make long run economic profit unlike perf comp

Answer 12

• Oligopolies have barriers of entry, such as economies of scale