2.11. Oligopoly

Question 1

Oligopoly Assumptions

Answer 1

1) The industry is dominated by a small number of large firms, each with substantial market power.
2) The industry can produce homogeneous (identical) products or differentiated products.
3) There are barriers to entry / exit.
4) The behaviour of firms is interdependent (actions by one firm affect the actions of other firms).

Question 2

Non-Collusive Oligpoly

Answer 2

Firms might prefer to use non-price competition and have less incentive to compete on Price Basis

Question 3

Significance of non-price price competition

Answer 3

• one of the ways that allows firms to make abnormal profits without the risk of price wars
• aggregate production differentiation might lead to a gain of monopoly power, which allows firms to increase price and control output in the future