Chapter 13 - Oligopoly

Question 1

Definition Oligopoly

Answer 1

if the top 5 firms in the market account for more than 60% of total market sales
e.g. automobiles, steel, aluminum, petrochemicals, computers, etc.

Question 2

Firms’ behavior in oligopoly

Answer 2

• prices are much higher than MC and reduced output
• more advertising (per unit sold)
• higher expenditure on research and development

Question 3

Problem for suppliers in oligopoly

Answer 3

each oligopolist is tempted to raise production and capture a larger share of the market.
As each of them tries to do this, total production rises and price falls.

Question 4

Collusion

Answer 4

An agreement among firms in a market about quantities to produce
or prices to charge.

Question 5

Cartel

Answer 5

A cartel is an organization of independent firms which decide to
coordinate their individual activities explicitly