Oligopoly Flashcards
Oligopoly
A market dominated by a few firms whom there is a conscious interpendence
What does it mean by conscious interpendence ?
Each firm is affected by the decisions of all other firms and that they are aware of this fact
Examples of oligopoly firms
Asda, Tesco, Aldi
What are barriers of entry for oligopoly due to firms being able to make economic/abnormal profit ?
Costs legal
What products do oligopoly produce ?
Products that are simmiler
What did economist Paul sweezy hypothesise ?
An oligopolist faces a kinked demand curve
Demand is price elastic for price increase
And price inelastic for price decrease
Due to price stability in oligopolistic market what are the non price competition it will use?
Quality
Customer service
After sales service and warranties
Advertising or branding
Collusive oligopoly
Firms agree to work together they form a cartel which effectively works as a monopoly , agree to price fix
Overtime collusive agreements are illegal
(Barometric) price leadership
Firms follow price set by the market leader
Limit pricing
Setting price low enough making it unprofitable for new firms to enter the market (gaining economics of scale)
Predatory pricing
Prices set so low that other firms in the market are forced out of business by making a loss as they seek to compete
Oligopoly in the long run what will reduced competition do ?
Possible for firms to increase prices especially when other barriers to entry are high
Example of a competition policy
Regulation prevents anti competitive practices such as predatory pricing and refusal to supply
Government can encourage entry and growth of small firms eg use of grants /subsidies
They can reduce barriers of entry by reducing regulations /increasing licenses
