Oligopolies

Question 1

What are oligopolies?

Answer 1

A small number of large firms controlling the market e.g. retail banking

Question 2

Feature: High concentration ratio

Answer 2

Small number of large firms dominate the market

Question 3

Feature: Product Differentiation

Answer 3

Firms are supplying close but not perfect substitutes. This is created by competitive advertising and sponsorship, brand loyalty e.g. loyalty cards.

Question 4

Feature: Interdependent

Answer 4

Firms are interdependent when they take into account the likely reactions of competitors, especially when raising price. This leads to price rigidity.

Question 5

Feature: Price rigidity

Answer 5

Is the tendency in oligopolistic markets for prices not to change, even if costs of production change.

Question 6

Feature: Barriers to entry

Answer 6

Yes there are barriers to entry.
Economies of Scale
High start-up costs: other firms have millions, new firms don’t
Strong Brand Loyalty: New firms struggle to get new customers

Question 7

Feature: Non-price competition

Answer 7

Tend not to compete on price, but on who has the biggest market share and who attracts the most new customers.

Question 8

Feature: Other aims than profit max

Answer 8

Avoidance of government regulation: unwanted attention could attract regulation due to high profits
Avoidance of extra tax: large taxes might attract a review.
Discouraging new entrants

Question 9

Feature: Collusion

Answer 9

Potential for firms to engage in anti-competitive behaviour e.g. forming cartels.

Question 10

Forms of collusion

Answer 10

Limit pricing
Price fixing: rival firms agree not to provide goods/services below a certain price.
Market sharing: is where rival firms divide up sales territories, i.e. they agree on the locations where the individual firms will trade.

Question 11

Market concentration:

Answer 11

When 4 firms dominate the market. Consumers have less choice, higher prices and higher potential for collusion.

Question 12

Regulation: Competition and Consumer Protection Commission (CCPC)

Answer 12

Investigates allegations of anti-competitive behaviour (Ticketmaster)
Assesses mergers/takeovers
Informs Consumers about their rights
Offers immunity from prosecution for the first Ty firm/individual in a cartel that reports on the other firms in a cartel.

Question 13

Evaluation: advantages

Answer 13

Number of suppliers to choose from
Innovative/creative - product differentiation
Consumer loyalty can be rewarded.

Question 14

Evaluation: disadvantages

Answer 14

Exploitation of consumers
Competitive advertising=increased prices
Price is higher and output is lower.