Oligopoly Flashcards

1
Q

Types of non-price competition

A

1.Increase brand loyalty
2.Improve customer service
3.Special offers - e.g. 2 for 1
4.Advertisement and marketing
5.Differentiation between products

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2
Q

What is limit pricing

A

Low price to discourage firms joining but the company makes lower profit margins annoying shareholders

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3
Q

What predatory pricing

A

Setting low prices to make firms leave market( loss in short term) then prices rise as firms leave market. IT IS ILLEGAL.

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4
Q

What is price wars

A

Where firms keep cutting prices but other firms follow lowering prices e.g. supermarket uk

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5
Q

3 types of price competition

A

1.Price wars
2.Predatory pricing
3.Limit pricing

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6
Q

What do cartels lead to

A

Higher prices for consumers and restricted output

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7
Q

What is a cartel

A

A group of 2 or more firms who have agreed to control prices, prevent new firms joining the market or limit output.

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8
Q

Drawbacksof collusion

A

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

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9
Q

Benefits of collusion

A

1.Industries can improve standards- firms collaborate
2.Excess profit for firms - use for investment
3.Increase size= more EOS

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10
Q

What is tacit collisions

A

When there is no formal agreement but collusion is implied happens in markets where there is price wars for example uk supermarkets

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11
Q

What is overt collusion

A

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

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12
Q

What are the 2 types of collusion

A

Overt or Tacit

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13
Q

What happens when firms collude

A

They agree to set higher prices or a amount of supply
So higher prices and greater profit for firms
This means lower consumer surplus

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14
Q

What is collusion

A

Firms coming together to agree on something like supply or price for a product.

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15
Q

What is concentration ratio?

A

The combined market share of a markets top firms

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16
Q

Characteristics of oligopoly

A

1.High barriers to entry and exit
2.High concentration ratio
3.Interdependent firms - what one firm does effects the other firm
4.Product differentiation