4.4 Oligopoly Flashcards
1
Q
Key Assumptions
A
- Differentiation
- Few large firms
- High barriers to entry
- Interdependence
2
Q
Examples of firms?
A
- Airlines
- High street banks
- Fizzy drinks makers
- “Big Six” in gas
3
Q
What is the concentration ratio?
A
Measures the combined market share of the top ‘n’ firms
4
Q
Key points of non-price competition?
A
- Customer service
- Quality
- Branding
- Environmental impact
5
Q
Reasons for collusive behaviour?
A
- Realise interdependence
- Maximise joint profit
- Lower cost of competition
- Reduce uncertainty
6
Q
What is open collusion?
A
Overt and traceable collusion
7
Q
What is tacit collusion?
A
Kept quiet and secret
8
Q
Reasons for cartel failures?
A
- Enforcement problems
- Whistleblowers (e.g. Virgin & BA)
- Success of non-cartel firms
9
Q
When are cartels likely?
A
- Ineffective regulation
- Low penalties
- Inelastic PED
10
Q
Costs of cartel behaviour?
A
- Low allocative efficiency
- X-inefficiency
- Low dynamic efficiency
11
Q
What is Game Theory?
A
Study of behaviour in strategic situations
12
Q
What is the Prisoner’s Dilemma?
A
Hard to co-operate when both firms could gain from undermining the other
13
Q
How does price collusion affect game theory?
A
Both firms get the best joint deal
