Oligopoly Flashcards
1
Q
Factors which increase the chance of cartel success
A
- Low demand changes
- Small number of firms
- High barriers to entry
- Perfect information
- Weak competition policy
- Brand loyalty
2
Q
Advantages of collusion
A
- Economies of scale- lower prices
- High quality standards- improved technology
- Improved R+D- improved dynamic efficiency
- No R+D duplication
3
Q
Disadvantages of collusion
A
- X inefficiency- lack of competition can set high prices
- Allocative inefficiency- output restricted
- Productive inefficiency
- Fall in consumer surplus
4
Q
Reasons to collude
A
- Reduce competition and cost of competition e.g. avoid price wars.
- Increase industry profits (pay-off matrix)
- Increase price setting power
- Protect market share
- Tacit collusion- legal- no paper trail
5
Q
Reasons not to collude
A
- Illegal- risk of fines
- Impact on brand image
- Risk of cheating
- X inefficiency
6
Q
Price wars definition
A
Where firms continuously drive down prices to the point where they are frequently making losses and firms are forced to leave.
