CH 13: Oligopoloy

Question 1

What are the characteristics of oligopoloy?

Answer 1

Few large n.o of sellers
Identical/differentiated products
Price makers, but mutual interdependence
Mergers
Entry barriers

Question 2

Does oligopoly have efficiency?

Answer 2

Oligopoly has neither allocative or productive efficiency.

Question 3

What is nash equilibrium?

Answer 3

Where all players are playing their dominant strategy at the same time and thus no player has any reason to change their prices.

Question 4

What doe rivals tend to ignore?

Answer 4

Rivals will ignore a price increase but follow a price cut.

Question 5

Why do rivals follow a price cut?

Answer 5

By matching price cuts, rivals will maintain their market share.

Question 6

What is the elasticity of the demand curve?

Answer 6

Above P1, demand is elastic and below P1 demand is inelastic.

Question 7

In game theory, if firm A implements high price strategy what will happen?

Answer 7

Firm B will also implement high price strategy.

Question 8

If firm A implements low price strategy, what will happen?

Answer 8

Firm A will earn a higher profit than Firm B.

Question 9

What are the advantages of advertising?

Answer 9

Low cost way of providing information to consumers.
It reduces monopoly power.
It is an efficiency enhancing power.

Question 10

What are the disadvantages of advertising

Answer 10

It can be used to manipulate/ persuade consumers.
Firms can establish brand loyalty and gain monopoly power
Advertising can be self-cancelling.