Lesson 21-Oligopoly Flashcards
Define a oligopoly
A situation where a small number of large firms dominate the market
State 6 features of a oligopoly
1 Interdependence-If one firm does something the other will do the same
2. Barriers to entry are high
3. rice rigidity-market prices remain same for long time
4. Non-Price competition- Competing based on prices will lead to price wars therefore they use other methods such as advertising and promotions
5. Collusions
6. Achieve EOS
Define collusions
Where firms in a oligopolistic market make arrangements to restrict output or raise prices in an attempt to maximize profits.
State 3 advantages of oligopolies
Wider choice for consumers
Consumers benefit from stable prices
Firms can achieve EOS
State 2 disadvantages of oligopolies
Consumers will be disadvantaged if they engage in cartel agreements
Consumers may be charges higher prices as firms will have to recover large amounts of money spent on advertising
Define cartel
Where a group of firms join together in order to raise prices or reduce output for the same purpose
Define price war
Where one firm in the industry reduces prices causing others to do the same
