Oligopoly Flashcards
Oligopoly characteristics
Interdependence (pay-off matrix)
Differentiated goods
High barriers
Collusion
Normally in oligopolies. Firms agree to set prices at a certain prices. Overt or tacit. (Overt illegal)
Payoff matrix problem
Firms can get the best available outcome by colluding. They end up at the worst outcome as they both try cheating each other so both get less revenue
Ways oligopolies can compete
Price comp
Non price comp
3 Price comp
Price wars
Predatory pricing
Limit pricing
Non price comp
Branding advertising loyalty cards quality (as differentiated)
5 Barriers to entry
Legal barriers Sunk costs E.O.S Brand loyalty Anti-competitive practices
Factors influencing whether an oligopoly should collude or compete
No. of firms
Cost (similar/no)
Customer loyalty
Effectiveness of competition regulation
Oligopolies on consumers
Collude-operate like monopoly pros and cons
Don’t-operate like in a competitive market, price falls, QS increases, consumer surplus maximised
Pros of monopolies on consumers
Dynamic Efficiency-process and product innovation. Can lead to lower prices in future as well through economies of scale as monopolies are large. More choice and quality.
Problems with colluding (5)
Illegal-fines Brand image could be harmed Risk of cheating Risk of whistleblowing X-inefficiency from lack of competition
Reasons to collude (3)
Reduce competition, protect MS and direct cost of it e.g marketing or price wars
Increase revenue by all profit maximising
Enable cost of regulation and taxes to be passed onto consumer easier
