Economics Micro Oligopoly collusion stuff + efficiency and other weak points Flashcards
Reasons for game theory not working
Ultimately, it is a strategy that doesn’t work if one party is acting irrational to gain trust and later lead them on
It also assumes perfect information in the market for the firms to go and guess what the revenue gains etc will be
Non price comp
Promotion – firms may engage in heavy advertising, special offers or bring in loyalty cards to increase customer awareness and develop brand loyalty
Product- they can sell exclusive or limited edition products, introduce new packaging or offer longer opening hours
Place- they could offer online delivery or more convenient locations
Conditions for collusion
High concentration ratio
Barriers to entry being very high - so new firms cannot enter and steal market share
Inelastic demand
Easy to monitor input and output price
Why firms make cartels.
Higher prices leading to higher revenue
Lower costs from less competition e.g. less advertising and sales promotion
Increased certainty about future performance/stable market share
Why do cartels fail
As price is inelastic, if price becomes not inelsatic then it will break down since there is subsitutes and therefore firms cannot exploit high prices anymore
Barriers to entry decrease
Why should we profit maximise?
Re-investment back into the buisness
Build up reserves in case of poor financial times
Satisfy shareholders through higher price and dividends of these
Why should we revenue maximize
More money flow to fund some projects quickly for cash flow - short term
Also for bonuses of managers
Stocks going off
Easier to calculate than profit maxx
Large revenues don’t attract the CMA to a greater extentW
Why should we sales maximise?
Because of brand loyalty
Eliminate competition and bring up more market share
Higher output for greater economies of scale
Larger firms are more prestigious so brings better workers
Unsustaintable? - need to eventually satisfy shareholders
CMA intervene if too much power
Prices set too low means anti competitive behaviour
Principle-Agent Problem
Profit related pay - Correlation doesn’t mean causation like CEO is effective but it may lead to losses
Shareholders scrutinising managers more
Employee ownership scheme where they give employees shares.
