3.4.4 Oligopoly Competition

Question 1

What are the characteristics of an oligopoly?

Answer 1

• high barriers to entry and exit
• high concentration ratios
• independence of firms
• product differentiation: non-price competitions to distinguish their offerings from competitors

Question 2

What is the concentration ratio?

Answer 2

It measures the combined market share of the largest firms in the industry

• ( total number of firms ) N : Total market share

Question 3

What is the significance of the concentration ratio?

Answer 3

• higher concentration ratio = more concentrated industry with fewer dominant firms
• lower concentration ratio = more competitive industry with greater number of smaller firms

Question 4

What is competitive oligopoly?

Answer 4

• can be based on price or non price factors
• or could be collusive either overt or tacit

Question 5

What is interdependence of firms?

Answer 5

Firms make decisions based on the actions and all reactions of rival firms