Chapter 15

Question 1

What is an oligopoly?

Answer 1

A market in which just a few firms dominate the market. Each firm will make decisions in close awareness of how other firms in the market may react to their actions.

Question 2

What is non-price competition?

Answer 2

a strategy whereby firms compete by advertising to encourage brand loyalty, or by quantity or design, rather than price.

Non-price competition involves ways that firms seek to increase sales and attract custom through methods other than price. Non-price competition can include quality of the product, unique selling point, superior location and after-sales

Question 3

What is interdependence in an oligopoly?

Answer 3

each firm in the market can affect the market, making firms decisions dependent on other firms

Question 4

What are the 3 types of collusion?

Answer 4

• Formal Collusion - when firms make a formal agreement to stick to high prices. This can involve the creation of a cart. The most famous cartel is OPEC- an organisation concerned with. Setting prices for oil.
• Tacit Collusion - where forms make informal agreements or collude without actually speaking to their rivals. This may be to avoid detection by government regulators.
• Price leadership. It is possible firms may try to unofficially collude by following the prices set by the market leader. This enables them to keep prices high, without ever meeting with rival firms. This kind of collusion is hard to prove whether it is unfair competition or just the natural operation of markets.

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Question 5

What is product differentiation?

Answer 5

A strategy firms adopt that marks their product as being different from their competitors.

Question 6

What are concentration ratios?

Answer 6

Measures the market share of the largest firms in an industry. For example, the three-firm concentration ratio measures the market share of the largest three firms in the market.

Question 7

What is the definition of an oligopoly?

Answer 7

The UK definition of an oligopoly is a five-firm concentration ratio of more than 50% (this means the five biggest firms have more than 50% of the total market share)​

Question 8

Give 7 characteristics of an oligopoly

Answer 8

• Few sellers
  
  • Interdependence
  • Advertising
  • Competition
  • Entry and exit barriers
  • Lack of Uniformity
  • Few sellers

Question 9

3 factors of an oligopoly:

Answer 9

- Interdependence of firms - Companies will be affected by how other firms set price and output.

- Barriers to entry - In an oligopoly, there must be some barriers to entry to enable firms to ain a significant market share. These barriers to entry may include brand loyalty or economies of scale.

• Differentiated products. In an oligopoly, firms often compete on non-price competition. This makes advertising and the quality of the product are often important.
  Oligopoly is the most common market structure

Question 10

What is collusion

Answer 10

occurs when rival firms agree to work together – e.g. setting higher prices in order to make greater profits. Collusion is a way for firms to make higher profits at the expense of consumers and reduces the competitiveness of the market.​

Question 11

What is collusion

Answer 11

involves some form of agreement to seek higher prices.