Oligoploy and game theory

Question 1

What are some examples of oligopolies?

Answer 1

Uk supermarkets
Airlines

Question 2

What are the characteristics of an oligopoly?

Answer 2

• Few firms dominate (high concentration ratio)
• Differentiated goods (price makers)
• Interdependence ( high rigidity)
• High barriers of entry/exit
• Non price competition (brand, ads)
• Profit maximising is not sole objective

Question 3

What are the oligopoly behaviour models?

Answer 3

• Cournot model (Q)
• Betrand model (price)
• Cartel

Question 4

What is the Cournot model of oligopoly behaviour?

Answer 4

Quantity competition. Firms decide q based on competitors output

Question 5

What is the Bertrand model of oligopoly behaviour?

Answer 5

Price competition. Firms compete on price, no firms can profitably deviate

Question 6

What is the Cartel model of oligopoly behaviour?

Answer 6

Explicit or tatic agreements to restrict production (barriers of entry)

Question 7

What curve should be used for an oligopoly?

Answer 7

Kinked demand curve

Question 8

What does the kinked demand curve show?

Answer 8

That there is price elasticity at the beginning then inelasticity after kink of demand

Question 9

2 things that firms don’t want/ need to do in oligoply market?

Answer 9

Change price
- Want to - as they will loose market share
- need to - as long as they are in MR kink