Oligopoly Flashcards
What is an oligopoly
An industry dominated by a few large firms. there are few sellers and many buyers. It si imperfect competition. In an oligopoly, there are few sellers and many buyers. The product might be homogeneous or differentiated. There is imperfect knowledge in this market as firms and buyers might not know of all sellers, buyers, prices and products available. Firms tend to avoid price comp. and so price remains rigid
Eg. mass media
Price rigiity
price remains at a certain level over a long period
Price war
Rival firms continuously reduce prices to undercut eachother
Oligopoly features
-few firms
- barriers to entry/exit are high because of economies to scale.
- Products offered may be very similar or differentiated
- Firms tend to be price setters rather than price takers, however there may be a market leader whose prices other firms tend to copy
Collusion
when there are price and quantity agreements with other firms
Cartels
an organization created from a formal agreement between a group of producers of a good or service to regulate supply in an effort to regulate or manipulate prices. It is a collection of otherwise independent businesses or countries that act together as if they were a single producer and thus are able to fix prices for the goods they produce without comp.
The oligopolies market structure
Is a kinked demand curve, this is due to oligopolistic interdependence (rely on each other). This means that the decisions made by one firm influences the others
A
relatively prices elastic
B
relatively inelastic
