3.4.4

Question 1

Name 6 of the 9 characteristics of an oligopolistic market

Answer 1

• Small number of large firms
• High concentration ratio
• High barriers to entry and exit in the market
• May or may not be profit - maximisers
• Potential for collusion
• Potential for price wars
• Interdependency
• Price rigidity
• Non-price competition

Question 2

In an oligopoly, why might firms be profit maximisers?

Answer 2

If firms profit maximize they can achieve super-normal profit in the short and long run.

Question 3

What’s the definition of a high concentration ratio?

Answer 3

This is the measure to the extent which an industry is controlled by a given number of firms.

Question 4

What’s the definition of collusion?

Answer 4

This is when firms illegally work together as a monopoly instead of competing

Question 5

What’re the two types of collusion?

Answer 5

Tacit and overt.

Question 6

What’s tacit collusion?

Answer 6

This is when firms unknowingly raise prices higher by following the market leader.

Question 7

What’s overt collusion?

Answer 7

This is when firms deliberately come together in order to raise prices.

Question 8

What might be a reason for firms to collude?

Answer 8

• Similar costs
• Few competitors
• Similar revenue
• High barriers to entry

Question 9

How do you calculate n-firm concentration ratio?

Answer 9

You’ll get firstly the value of sales of several firms and a specific number to calculate for the firm concentration ratio.

Add the firm’s equal to the number need for the firm concentration ratio.

Calculate the percentage of total sales that the top X firms have.

Question 10

Draw a diagram to represent prisoner’s dilemma

Answer 10

• If neither collude, we make 75M
• If I collude and snitch, I make 250M and they make 10M
• If the other firm collude and snitches, I make 10M the other firm makes 250M
• If we both collude we both make 200M

To draw it:
- Use a box, split it into 4 and then the boxes diagonally
- Top side is firm A
- Left side is firm B
- Top left box is labeled “collude” with top + left side
- Bottom left and top right labeled “cheat” by the side of the firm.

Question 11

What’s non-price competition?

Answer 11

A marketing strategy “in which one firm tries to distinguish its product or service from competing products without changing the price.

For example, a hotel with free WiFi.

Question 12

Name 2 types of non-price competition

*pubs

Answer 12

• Loyalty cards
• Subsidised delivery
• After-sales service

Question 13

How is price calculated in an oligopoly market structure?

Answer 13

It depends on:

• Collusion
• Profit maximisation
• Revenue maximisation
• Sales revenue maximisation
• Price wars
• Predatory pricing
• Entry-limit pricing