Lessons 21-24

Question 1

n-firm concentration ratio

Answer 1

a measure of the market share of the largest n firms in an industry

Question 2

oligopoly

Answer 2

a market with a few dominant sellers, in which each firm must take account of the behaviour and likely behaviour of rival firms in the industry

Question 3

non-price competition

Answer 3

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

Question 4

cartel

Answer 4

an agreement between firms on price and/or output with the intention of maximising their joint profits

Question 5

tacit collusion

Answer 5

a situation occurring when firms refrain from competing on price, but without communication or formal agreement between them

Question 6

strategic alliance

Answer 6

a long-term cooperative arrangement between firms, such as sharing networks or bulk buying

Question 7

price leadership

Answer 7

a dominant producer sets a price and competitors follow

Question 8

barometric price leadership

Answer 8

a firm tries out a price increase to see if competitors follow, and cuts prices if they don’t

Question 9

What are the characteristics of an oligopoly?

Answer 9

few large firms, high barriers to entry, non-price competition, price makers, interdependent decision making

Question 10

Firms engage in non- price competition by competing with

Answer 10

Innovation, customer service, free upgrades, exclusivity, loyalty schemes, branding, (non-price) sales promotion, convenient competition, breadth of product range