Oligopoly

Question 1

Oligopoly

Answer 1

Market structure where there are a small no. of firms and each firm is interdependent with one another, creating uncertainty.

Question 2

Characteristics

Answer 2

• Supply is concentrated in the hands of few firms
• Firms are interdependent, the actions of one will directly affect another firm, e.g. if one firm pursues policies to increase sales this will be at the expense of other firms, and take away sales from them, this creates uncertainty
• product differentiation
• High barriers to entry and exit

Question 3

Collusion

Answer 3

Strong incentive for collusion

Firms make agreements amongst themselves so as to restrict competition and maximise their own benefits

Question 4

Collusive oligopoly

Answer 4

A market with a high concentration ratio where few independent firms cooperate to restrict competition

Question 5

How does collusion benefit firms

Answer 5

Average revenue of competing firms is low

Collusion by restricting output leads to higher prices and higher profit

Question 6

Overt or formal collusion

Answer 6

Firms make agreements to restrict competition by reducing output, raising prices and keeping potential competitors out of the market e.g. cartels
using price agreements, where two or more firms arrange to fix prices of products

Question 7

Cartel

Answer 7

A formal agreement between firms to limit competition in the market
by limiting output in order to raise prices OPEC