Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics Unit 3 > Concentrated markets: the theory of oligopoly > Flashcards

Concentrated markets: the theory of oligopoly Flashcards

1
Q

What is an oligopoly?

A

Where a few large firms have the majority of the market share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a concentration ratio?

A

The proportion of the market held by the dominant firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What does a concentration ratio of 5:80 mean?

A

The 5 largest firms possess 80% of the market share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the barriers to entry? (7) (PAMINBR)

A 
Predatory pricing
Advertising
Multiplicity of brands 
Integration 
Non-price competition 
Branding 
Research and development
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How does predatory pricing act as a barrier to entry?

A

Large firms can lower there prices where other small firms are unable to compete

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is predatory pricing?

A

Setting a price that may bankrupt a competitor firm in order to try and take it over

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How does advertising act as a barrier to entry?

A

Large firms can spread the fixed costs of advertising over a large volumes of units, which decreases the unit costs
Small firms have to match the level of advertising, but with a smaller volume of output, their unit cost will be higher

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How does multiplicity of brands act as a barrier to entry?

A

By aiming at every area in the market, the firm is likely to gain customers who change brands frequently

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How does integration act as a barrier to entry?

A

Large firms are able to control the supply of resources, can lead to predatory pricing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is integration?

A

Combining with other firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How does non-price competition act as a barrier to entry?

A

Loyalty cards, persuades consumers to continue shopping with the same firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How does branding act as a barrier to entry?

A

Firms stress that their brands have unique characteristics, a brand image is created through advertising, making the demand more inelastic

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How does research and development act as a barrier to entry?

A

Can improve the quality of their products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does interdependent mean?

A

Where actions by one firm will have an effect on the sales and revenue of other large firms in the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a price war?

A

Where firms competitively lower prices to increase their market share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is reactive behaviour?

A

The action taken by firms in response to a change in behaviour of a competitor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is brand loyalty?

A

A measure indicating the degree to which consumers will purchase a firm’s product rather than a competing firm’s product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

In the kinked demand curve, above the price, why is the demand curve elastic?

A

If a firm raises its price, competitors will not change theirs, and the firm will experience a fall in total revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

In the kinked demand curve, below the price, why is demand curve inelastic?

A

If a firm lowers its price, competitors will follow, and the firm will experience a fall in total revenue

20
Q

In the kinked demand curve, if the MC curve fluctuates withing the discontinuity, what happens?

A

There is no change in the level of output or price

21
Q

In the discontinuity section of the kinked demand curve, if the MC curve shifts upwards, what happens?

A

The oligopolist would absorb all of the cost increase by taking a cut in profit

22
Q

In the discontinuity section of the kinked demand curve, if the MC curve shifts downwards, what happens?

A

The oligopolist profit levels would increase

23
Q

What are the problems with the kinked demand curve theory? (2)

A

There is no explanation of how the original price was determined
Ignores non-price competition

24
Q

What is non-price competition likely to increase?

A 
Increases costs (e.g-advertising) 
However avoids price wars
25
Q

What is game theory?

A

An analysis of how game players react to changing circumstances and plan their response

26
Q

What is zero sum game?

A

Where a gain by one player is matched by a loss by another player

27
Q

What is risk averse?

A

Where one party does not take any action that might promote retaliatory activity by another party

28
Q

What us collusion?

A

Where firms cooperate in their pricing and output policies

29
Q

What is the Prisoners’ dilemma?

A

Where prisoners both choose the worst option

30
Q

What is Nash equilibrium?

A

Where the optimum strategy is to maintain current behaviour

31
Q

What is formal collusion?

A

Some form of agreement exists between the key firms in the industry about price and output policies

32
Q

What is a restrictive agreement?

A

Where firms collude to indulge in anti-competitive policy

33
Q

What are joint profits?

A

Where firms agree to maximise shared rather than their individual profits

34
Q

What is the aim of restrictive agreements?

A

To increase the level of shared profits at the consumers’ expense in terms of price, quality or availability

35
Q

What is a cartel?

A

A group of firms working together, or colluding

36
Q

What are the condition necessary fir a cartel to operate successfully? (3)

A

Homogeneous products
High entry barriers
The market being supplied should be isolated from supplies by producers outside the cartel

37
Q

What are the outcomes of a cartel, for producers? (3)

A

Increase in sales revenue and profit
There will be an increase in non-price competition
Increases in R&D

38
Q

What are the outcomes of a cartel for consumers? (2)

A

Increase in the price of a product

Reduction of the consumer surplus

39
Q

What is informal collusion?

A

May operate by one firm acting as a price leader

40
Q

What is a price leader?

A

A firm that establishes the market price that all other firms in the agreement follow

41
Q

What is barometric price leadership?

A

A firm whose price changes are accepted as they are adroit at interpreting market conditions

42
Q

What is parallel pricing?

A

Where firms charge identical prices

43
Q

What is tactic collusion?

A

Where firms have reached an agreement as to each others behaviour as a result of repeated observations over time

44
Q

What is transfer pricing?

A

Where multinationals can alter costs and prices to benefit from different levels of tax in different countries

45
Q

What is cost plus pricing?

A

Where are firm calculates the average cost an adds a mark up and makes this the selling price

46
Q

What are menu costs?

A

The time and money spent by businesses in changing their prices in line with inflation

Economics Unit 3 (15 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions