OLIGOPOLY Flashcards
CONCENTRATION RATIOS
Shows how much of the market is ran by the top firms
➳Calculation- if there was a 3 firm concentration ratio for a market worth 45m; and the three firms were worth 15m, 9m and 7m the concentration ratio would be (15+9+7)/45x100=68.9%
OLIGOPOLY DEFINITION
There are two ways to define an oligopoly:
➳A market dominated by a few firms that has high barriers to entry and differentiated products.
➳Or a market which the firms are interdependent, the action of one firm will most likely effect the others.
COLLUSIVE BEHAVIOUR
➳Formal collusion is an agreement between firms ie. they form a cartel. Usually illegal.
➳Informal collusion, this is a tacit, happens without an agreement.
➳Usually when firms have similar costs
➳Low amount of firms
➳Rely on brand loyalty
NON-COLLUSIVE BEHAVIOUR
Otherwise known as competitive behaviour. This is when firms compete rather than cooperate.
➳One firm has lower costs then others
➳Large number of big firms
GAME THEORY
This is where they heavily rely on other firms decisions as well as their own as they are interdependent.
PRISONERS DILEMMA
Can be used to understand how interdependent firms are.
➳Have to decide what level of output to produce and know the other firm also has to decide the same.
➳Can choose between high and low levels.
➳Look at quickonomics diagram to understand the graph.
THE KINKED DEMAND CURVE
It is used to explain price stability.
➳two assumptions- if one raises its prices then the other firm will raise theirs and if one lowers theirs then the other will also lower theirs.
➳when price is increased demand is price elastic
➳when decreased it is inelastic.
CHARACTERISTICS OF AN OLIGOPOLY
➳High barriers to entry
➳Price makers
➳Few firms
➳Differentiated products
