Oligopoly

Question 1

Define Oligopoly

Answer 1

Market dominated by a few large firms with a high concentration ratio. Top 5 firms have more than 60%.
Best defined by the actual day to day behaviour of the firms.

Question 2

Define interdependence

Answer 2

One firm’s output, price and investment decisions are influenced by the likely behaviour of competitors. In an oligopoly there is a lot of uncertainty.

Question 3

What is caused by rigid prices?

Answer 3

Non price competition

Advertising, service quality, free updates

Question 4

How much does Unilever spend every week on advertising?

Answer 4

3mn

Question 5

Effect of price collusion

Answer 5

maximises joint profits, effectively acting as a monopoly

Question 6

Why does collusion break down?

Answer 6

Firms pursue rational self interest

Question 7

What does the impact of an oligopoly ultimately depend on?

Answer 7

THE REGULATOR

Question 8

What does the pay-off matrix assume?

Answer 8

Rational behaviour of economic agents

However they might not act rationally

Question 9

Chain of analysis for price wars in an oligopoly

Answer 9

breakdown of a cartel-price war-lower prices-higher output because demand is low-spare capacity is utilised-fixed cost per unit come down

Question 10

Best example for an actual cartel (NOT OPEC)

Answer 10

Quebec Maple Syrup Cartel (Price 25% above Marginal Cost)

Question 11

Example of a fine for price fixing?

Answer 11

KLM was fined 127mn for price fixing in the cargo sector