1.2.4 oligopolies Flashcards
1
Q
Oligopoly
A
When a market is dominated by a few large firms (two of more)
2
Q
Main features of an oligopoly
A
- Few firms
- Large firms dominate
- Varied products
- High barriers to entry
- Collusion
- Non-price competition
- Price competition
3
Q
Advantages of an oligopoly
A
- More choice
- Higher quality
- Lower prices (due to firms exploiting EOS)
- More innovation (more money for R&D)
- Price wars (firms may lower prices due to another firm doing so - benefits consumers)
4
Q
Disadvantages of an oligopoly
A
- Cartels
- Less innovation/quality (less motivated as they do not need to attract more customers)
- Price wars (smaller firms may go out of business from constantly lowering prices)
- Less choice for consumers
5
Q
Collusion
A
Informal agreement between firms to restrict competition (price fixing, restricting output, separating the market by location)
6
Q
Non-price competition
A
Competitive practice not based on price (coupons, loyalty cards, branding, competition, free gifts/offers, product differentiation)
7
Q
Price competition
A
Competitive practices based on price (interdependence - the action of one firm causing a direct effect on others)
8
Q
Cartel
A
A group of firms that join together to make agreements on output levels so that firms can fix higher prices and force consumers to pay higher prices
