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Economics Theme 3 > 3.4.4- Oligopoly > Flashcards

3.4.4- Oligopoly Flashcards

1
Q

What are the characteristics of an oligopoly?

A

-differentiated products
-many buyers + a few dominant sellers
-interdependent decision making
-barriers to entry/exit
-price makers
-imperfect information

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2
Q

What happens if a firm in an oligopoly raises its price according to the kinked demand curve?

A

Other firms wont follow so they lose a significant number of customers

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3
Q

What happens if a firm in an oligopoly lowers its price according to the kinked demand curve?

A

Other firms will follow so they don’t acquire many extra customers

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4
Q

What is the name of the stable price?

A

Sticky price

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5
Q

What is an evaluation of the kinked demand curve?

A

Don’t know the stable price level

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6
Q

How do you work out the N-firm concentration ratio?

A

total sales of n firms/ total size of market * 100

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7
Q

What is collusion?

A

When firms make collective agreements that reduce competition

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8
Q

What is good about collusion?

A

-can maximise industry profits
-reduces fear of price wars

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9
Q

What is bad about collusion?

A

-illegal
-risk of breaking the cartel

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10
Q

What is a credible threat?

A

A threat to prevent a cartel being broken like whistleblowing or threatening the supplier to stop supplying to them

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11
Q

What is a cartel?

A

A formal collusive agreement where rules are laid out in a formal document and fines are charged to those who break the rules

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12
Q

What is price leadership?

A

One firm has advantages due to its size or costs and becomes the dominant firm so other firms follow this firm as they wouldn’t want to take it on in a price war

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13
Q

What is a non-collusive oligopoly?

A

Behaviour depends on how it thinks other firms will react to its policies

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14
Q

What is game theory?

A

Explores the reactions of one player to changes in strategy by another player

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15
Q

What is the maxi-min strategy?

A

Least worst outcome

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16
Q

What is the maxi-max strategy?

A

Best possible outcome

17
Q

What is the dominant strategy?

A

Both maximin and maximax

18
Q

What is nash equilibrium?

A

Where neither player is able to improve their position and has optimised their outcome based on other players expected decision

19
Q

What is the name of the prisoners dilemma diagram?

A

Pay off matrix

20
Q

What are the types of price competition?

A

-price wars
-predatory pricing
-limit pricing
-cost plus pricing
-psychological pricing
-market led pricing
-price skimming
-penetration pricing

21
Q

When do price wars occur?

A

When non-price competition is weak and its difficult to collude

22
Q

What is an example of an industry that has price wars?

A

Supermarkets

23
Q

What is predatory pricing?

A

When an established firm sets a low price that other firms are unable to make a profit from so will be driven out of the market, then rises the price again

24
Q

What is the evaluation of predatory pricing?

A

-illegal
-only works is business is large and can sustain losses

25
Q

What is limit pricing?

A

Firms set prices low to discourage any new entrants but high enough to make normal profit

26
Q

What is the disadvantage of limit pricing?

A

Firms can’t make high profits

27
Q

What is cost plus pricing?

A

Firms work out their average costs and add a percentage increase which determines the level of profit they make

28
Q

What is psychological pricing?

A

Non rounded pricing to give an impression that the price is cheap

29
Q

What is market led pricing?

A

Firms set prices by looking at prices charged by competition

30
Q

What is price skimming?

A

Initially sets prices high to cover R+D costs and keep demand manageable, then lowers the price

31
Q

What type of companies is price skimming usually used for?

A

Tech companies

32
Q

What is penetration pricing?

A

Initially sets low prices then raises once people have loyalty

33
Q

What are the types of non price competition?

A

-advertising
-loyalty cards
-branding
-quality
-customer service
-product development

34
Q

What is an evaluation of non-price competition?

A

-expensive
-doesn’t guarantee success

35
Q

How efficient are oligopolies?

A

-not productively or allocatively efficient
-dynamically efficient due to SNP

36
Q
A

Economics Theme 3 (15 decks)

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