5.3 Oligopoly Flashcards
characteristics of an oligopoly
high barriers to entry and exit
interdependence of firms
Product differentiation
Why are there high barriers to entry and exit in an oligopoly
To make the market less competitive
How are firms interdependent in an oligopoly
The actions of one firm affect another firms behaviour
How do firms differentiate their products in an oligopoly
Using branding
What is collusive behaviour
When firms agree to work together o something e.g. Set a price or fix quantity of output
What does collusion lead to
A lower consumer surplus
High prices
Greater profits
What does collusion allow
Oligopolistic to act like a monopolist and maximise their joint profits
Why is collusion more likely to happen where there are only a few firms
Because they face similar costs
high barriers to entry
Its hard to be caught
When does non collusive behaviour occur
When firms are competing
What is overt collusion
When a formal agreement is made between firms
Works best when there is only a few dominant firms
Where is overt collusion illegal
EU and US
What is tacit collusion
When there is no formal agreement but collusion is implied
What is an example of tacit collusion
The uk supermarket industry
Firms are competing in a price war
What does the kinked demand curve show
The feature of price stability in an oligopoly
What does the kinked demand curve assume
Other firms have asymmetric reaction to a price change by another firm
