Oligopoly

Question 1

1.

Tendencies of oligopolies

Answer 1

Tenedency to compete and tenedency to collude

Question 2

When do they compete

Answer 2

In a case of high tendency to compete firme will not collude they will compete , there will be a price war

legal

Question 3

When do firms collude

Answer 3

In a case of high tendency to colude firms will not compete instead they will collude. Firms will collude openly (openly) by making a cartel or will compete secretly (covertly) in a form of tacit collusion.

Question 4

Oligopoly

Answer 4

An oloigopoly market is when 5 firms have more than 60% market share

Question 5

Concentration ratio

Answer 5

the sum of market share percentages of specified number of large firms in a market

Question 6

Importance of concentration ratio

Answer 6

• shows hoe powerful large firms are in a market
• can show minsopony power
• shows the market structure
• changes in competition
• government check - consumer wellfare
  *if a three firm concentration ratio is greater than 80 percent there is a greater chance of collusion *

Question 7

Characteristics

Answer 7

• few firms dominate the market
• high concentration ratio
• high barriers to entry and exit
• imperfect knowledge
• slight product differentiation
• interdependance of firms
  *decesions of one firm affect other firms

Question 8

Collusion

Answer 8

Profit motive works as an incentive for owners and managers
*COLLUSION IS OFTEN FORMED TO RAISE PROFITS AND INCREASE PRICES AT THE EXPENSE OF ITS CUSTOMERS *

Therefore is illegal

Question 9

Three types of collusion

Answer 9

• formal
• this is known as overt collusion and occurs when firms co - operate explicity and make formal agreement between rival firms - creates cartels
• tacit
• price leadership

Question 10

cartel

Answer 10

when two or more firms enter into formal agreement that aims to fix the price of goods or set a quota for the market supply of goods in a paticular industry.
* they can colude and restrict supply to increase prices

Question 11

Tacit collusion

Answer 11

Same agreement like over collusion but the agreemnts are performed implicityly. Firms collude without formal agrements to avoid suspicions from government regulators

Question 12

Price leadership

Answer 12

Unoffical collusion , firms follow the prices set by a market leader

Question 13

Reasons for collusive behaviour

Answer 13

• maximise profits
• research and development
• reduce costs of competition - advertising costs
• reduce price war risks
• higher bargaining power

Question 14

Reasons for competitive behaviour

Answer 14

• can cheat on agreements
• illegal - highly regulated by the market CMA
• diffiuclt to acctually collude
• crisis - excess supply
• rapid technolical change - streetbess , consumers raised 34 million and is believed to disrupt
• whistleblowrers - expose

Question 15

non price competition

Answer 15

allows firms to compete through quality of product and service they offer

Question 16

Types of non price competition

Answer 16

• loyalty card
• advertising - BMW 8bn
• Brand proliferation
• Direct mailing - Pizza hut and dominoes
• Unique selling point - Hand made nature of RR
• Subsidises delivery - Prime
• Good after sales sevices - Apple care