1.2.4 oligopolies

Question 1

Oligopoly

Answer 1

When a market is dominated by a few large firms (two of more)

Question 2

Main features of an oligopoly

Answer 2

• Few firms
• Large firms dominate
• Varied products
• High barriers to entry
• Collusion
• Non-price competition
• Price competition

Question 3

Advantages of an oligopoly

Answer 3

• 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)

Question 4

Disadvantages of an oligopoly

Answer 4

• 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

Question 5

Collusion

Answer 5

Informal agreement between firms to restrict competition (price fixing, restricting output, separating the market by location)

Question 6

Non-price competition

Answer 6

Competitive practice not based on price (coupons, loyalty cards, branding, competition, free gifts/offers, product differentiation)

Question 7

Price competition

Answer 7

Competitive practices based on price (interdependence - the action of one firm causing a direct effect on others)

Question 8

Cartel

Answer 8

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