Oligopoly

Question 1

Price leadership

Answer 1

When one firm has a dominant position and firms with lower market shares follow the price changes of the leaders

Question 2

Collusion

Answer 2

Takes place when rival companies cooperate for their mutual benefit

Question 3

Cartel

Answer 3

Association of businesses and countries that collude to influence production levels and thus the market price

Question 4

Interdependence

Answer 4

Where the decisions made by a business arent made in isolation, it must consider the likely reaction of rival firms

Question 5

Prisoners dillema

Answer 5

Problem in game theory that demonstrates why 2 people might not cooperate even if in their best interests

Question 6

Kinked demand curve

Answer 6

Assumes that a business faces a dual demand curve for its product based on the likely reaction of other firms

Question 7

Key characteristics of an oligopoly

Answer 7

-Best defined by the actual behaviour of firms
-A market dominated by a few large firms
-High market concentration ratio
-Products can be differentiated
-Interdependent strategic decisions by firms

Question 8

Concentration ratio

Answer 8

A measure of the total output produced in an industry by a given number of firms in the industry.

Question 9

Interdependence expained

Answer 9

Firms are likely to be aware of others actions as there is a small amount of firms so the decisions of one firm influences the decisions of other firms. So firms must take into account the likely reactions of their rivals to things like changes in price. This causes oligopolistic industries to be at high risk of collusion and uncertainty