Oligopoly

Question 1

IBI

Characteristics of an Oligopoly

Answer 1

1. Interdependence
2. Barriers to Entry
3. Information

Question 2

Cite some barriers to entry in an oligopoly

Answer 2

1. Large economies of scale
2. Scarce resources
3. Increase advertising
4. Innovations

Question 3

KCSB

Oligopoly Theories

Answer 3

1. Kinked Demand Curve Model / Sweezy’s Model
2. Cournot Model
3. Stackelberg Model
4. Bertrand Duopoly Market

Question 4

Used to explain the price inflexibility in oligopoly

Answer 4

Kinked Demand Curve Model / Sweezy’s Model

Question 5

Used when prices change very rarely.

Answer 5

Kinked Demand Curve Model / Sweezy’s Model

Question 6

This theory assumes that when a firm lowers price, everyone lowers price to avoid losing customers and market share.

Answer 6

Kinked Demand Curve Model / Sweezy’s Model

Question 7

When a firm raises its price, none of the rival firms would raise its price.

Answer 7

Kinked Demand Curve Model / Sweezy’s Model

Question 8

FDBB

Characteristics of a Kinked Demand Curve Model / Sweezy’s Model

Answer 8

1. Few firms in the market
2. Differentiated products
3. Believes rivals will cut their prices in response to a price reduction
4. Barriers to entry exists

Question 9

Used when firms produce identical or standardized products and don’t collude.

Answer 9

Cournot Model

Question 10

One firm must determine the quantity they must sell at the same time that the other firms decide what quantity they would sell.

Answer 10

Cournot Model

Question 11

Here, firms choose their quantities only once.

Answer 11

Cournot Model

Question 12

FPBB

Characteristics of Cournot Model

Answer 12

1. Few firms in market
2. Produce either differentiated or homogenous products
3. Believes that rivals will hold their output constant if it changes output
4. Barriers to entry exists

Question 13

In this model, one firm serves as the the industry leader.

Answer 13

Stackelberd Model

Question 14

FPSOB

Characteristics of Stackelberg Model

Answer 14

1. Few firms in the market
2. Produces either differentiated or homogeneous products.
3. Single firm chooses an output quantity before others
4. Other will take the given output and choose outputs that maximize profits
5. Barriers to entry exists

Question 15

What’s the difference between Cournot Model and Stackelberg Model?

Answer 15

Cournot - Firms choose simultaneously

Stackelberg - Firms choose sequentially

Question 16

It’s when one firm determines the profit maximizing quantity and the other firms react to that quantity.

Answer 16

Stackelberg Model

Question 17

It’s when two firms make simultaneous choices.

Answer 17

Cournot Model

Question 18

It examines price competition among firms that produce highly substitutable goods.

Answer 18

Bertrand Duopoly Market

Question 19

FIEPB

Characteristics of Bertrand Duopoly Market

Answer 19

1. Few firms in the market
2. Identical products at a constant marginal cost
3. Engages in price competition and reacts optimally
4. Perfect information and no transaction costs
5. Barriers to entry exists

Question 20

In this model, the firms select the price that will maximize profits

Answer 20

Bertrand Duopoly Market

Question 21

In this two models, the focus is on quantity.

Answer 21

Cournot Model and Stackelberg Model

Question 22

What do you call when firms collude?

Answer 22

Collusive Oligopoly

Question 23

It often results to competition among firms.

Answer 23

Non-collusive Oligopoly

Question 24

It’s when participants act more like a monopoly and enjoy the benefits of higher profits.

Answer 24

Collusion

Question 25

Types of Collusion

Answer 25

Covert Tacit

Question 26

It occurs when firms try to hide the results of their collusion.

Answer 26

Covert

Question 27

It arises when firms act together but there's no agreement among themselves.

Answer 27

Tacit

Question 28

An analytical guide or tool for making decisions in situations involving interpendence.

Answer 28

Gane Theory

Question 29

It is any decision-making situation in which people compete with each other for the purpose of gaining the greatest individual pay-off.

Answer 29

Game

Question 30

It attempts to rake into consideration the interactions between the participant and their behavior to study the strategic decision-making between rational individuals

Answer 30

Game Theory

Question 31

# ZPN Types of Games according to Outcome

Answer 31

Zero-sum Games Positive-sum Games Negative-sum Games

Question 32

#SSOR Games according to how players decide their moves

Answer 32

Simultaneous-move games Sequential-move games One-shot games Repeated games

Question 33

One player's gain is another player's loss

Answer 33

Zero-sum games

Question 34

Games with the potential for mutual profit.

Answer 34

Positive-sum games

Question 35

Games with the potential for mutual loss.

Answer 35

Negative-sum games

Question 36

Exists if you make a decision without knowing what other players decided.

Answer 36

Simultaneous-move games

Question 37

Everybody except the player who moved first gets to observe their rival's decision before making their own decision.

Answer 37

Sequential-move games

Question 38

Played only once, not repeated by other players.

Answer 38

One-shot games

Question 39

Players know that the game is played again over a time period.

Answer 39

Repeated games

Question 40

A strategy when a player attempts to earn the maximum possible benefit available.

Answer 40

Maximax

Question 41

It's often seen as naive since it assumes a highly favorable environment for decision making.

Answer 41

Maximax

Question 42

A strategy where a player chooses the best of the worst pay-off.

Answer 42

Maximin

Question 43

It's commonly chosen when a player can't rely on the other party to keep any agreement that has been made.

Answer 43

Maximin

Question 44

It's the best outcome irrespective of what the other player chooses.

Answer 44

Dominant strategy

Question 45

It's the solution to a game involving two or more players who want the best outcome for themselves and must take the actions of others into account.

Answer 45

Nash Equilibrium

Question 46

When this is achieved, players can't improve their pay-off by changing their strategy.

Answer 46

Nash Equilibrium

Question 47

It is the best strategy assuming that the other party has chosen a strategy and will not change it.

Answer 47

Nash Equilibrium

Question 48

What happens when firms realize the strategy that leads to Nash Equilibrium?

Answer 48

They may revert to using randomized strategies - haphazard actions to keep rivals from predicting their strategic moves.