Oligopoly Flashcards
Types of non-price competition
1.Increase brand loyalty
2.Improve customer service
3.Special offers - e.g. 2 for 1
4.Advertisement and marketing
5.Differentiation between products
What is limit pricing
Low price to discourage firms joining but the company makes lower profit margins annoying shareholders
What predatory pricing
Setting low prices to make firms leave market( loss in short term) then prices rise as firms leave market. IT IS ILLEGAL.
What is price wars
Where firms keep cutting prices but other firms follow lowering prices e.g. supermarket uk
3 types of price competition
1.Price wars
2.Predatory pricing
3.Limit pricing
What do cartels lead to
Higher prices for consumers and restricted output
What is a cartel
A group of 2 or more firms who have agreed to control prices, prevent new firms joining the market or limit output.
Drawbacksof collusion
1.Loss of consumer welfare- increase in price
2.Less competition means cost of production increases
3.Monoploy power for firms
4.Less supply means loss of allocative efficiency
Benefits of collusion
1.Industries can improve standards- firms collaborate
2.Excess profit for firms - use for investment
3.Increase size= more EOS
What is tacit collisions
When there is no formal agreement but collusion is implied happens in markets where there is price wars for example uk supermarkets
What is overt collusion
When firms make a formal agreement to collude this is illegal in many countries as it doesn’t have the consumers best interest in mind
What are the 2 types of collusion
Overt or Tacit
What happens when firms collude
They agree to set higher prices or a amount of supply
So higher prices and greater profit for firms
This means lower consumer surplus
What is collusion
Firms coming together to agree on something like supply or price for a product.
What is concentration ratio?
The combined market share of a markets top firms
