Oligopoly

Question 1

What is the definition of an oligopoly?

Answer 1

An oligopoly is a market where a few sellers dominate the market

Question 2

What are the characteristics of an oligopoly?

Answer 2

High concentration ration, strongly differentiated products, downward sloping demand curve, price makers, high barriers to entry and exit,
interdependence around firms

Question 3

What is
interdependence?

Answer 3

How firms change their decisions based on the actions around rivals

Question 4

What is the F-rule?

Answer 4

5 fewer firms control at least 50% of the market

Question 5

What is the Kinked demand curve?

Answer 5

Based on how firms in an oligopoly market perceive their own demand curve/ base on interdependence

Question 6

What efficiency is achieved with oligopoly?

Answer 6

Dynamic: SNP used for efficiency
X-efficiency: Actual costs are lower than potential costs

Question 7

What are the different theories of Oligopoly?

Answer 7

Kinked demand curve, game theory, collusion

Question 8

What is game theory?

Answer 8

There is a dominant strategy that firms will take to maximise profits,

Question 9

What is collusion?

Answer 9

Due to small number of firms there is a strong temptation to join together to restrict supply

Question 10

What are the reasons for non-collusive behaviour?

Answer 10

Lots of firms, new market entry, saturated market, effective regulation, one firm having significant cost advantages

Question 11

What can collusive behaviour lead to?

Answer 11

Increased prices, SNP, dynamic efficiency

Question 12

What can non-collusive behaviour lead to?

Answer 12

investment , lower prices , and static efficiency

Question 13

What is sticky pricing?

Answer 13

the tendency of prices to remain constant or to adjust slowly, despite changes in the cost of producing and selling the goods or services.

Question 14

What is non-price competition?

Answer 14

a form of competition in which two or more producers use such factors as packaging, delivery, or customer service rather than price to increase demand for their products.

Question 15

Why do firms focus on non-price competition?

Answer 15

Due to sticky pricing

Question 16

What are the two downsides of the kinked demand curve?

Answer 16

Does not explain how market price is determined

Does not explain price wars

Question 17

What are the different pricing strategies?

Answer 17

Predatory pricing , limit pricing , price wars , price leadership

Question 18

What is predatory pricing?

Answer 18

Offer lower price than cost of production in short run to remove competitors therefore in the long run to increase prices

Question 19

What is limit pricing

Answer 19

a dominant firm maximizes its profits by choosing a price that is low enough to discourage some but perhaps not all entrants into the market

Question 20

What are price wars?

Answer 20

a competitive exchange among rival companies who lower the prices on their products, in a strategic attempt to undercut one another and capture greater market share. With a firm retaliating

Question 21

What is price leadership?

Answer 21

the setting of prices in a market by a dominant company, which is followed by others in the same market.

Question 22

What is tacit collusion?

Answer 22

a type of collusive behaviour where firms coordinate their actions without explicitly communicating or reaching an agreement

Question 23

What is open collusion?

Answer 23

type of collusion in which formal and explicit co-operation and agreements take place between rival firms.