Oligopoly Flashcards
What is an oligopoly
A type of market structure with a few large sellers who are interdependent on each other
what is Interdependent
Actions of one firm influences another
e.g now firm rises prices causes another to
Number of firms
Few large sellers 2/3/4
Price setting power
Price Makers
Interdependent
N firm ratio
Less than 50% combined
less than 25% for one
products
differentiated goods
Contestability
Low
Barriers to entry and exit
High barriers to entry and exit
Objectives
Profit maximisers
Efficiency
Dynamic
Regulation
Highly Regulated due to collusion
Collusion
Risk of collusion due to creation of “sticky point”
Societal impact
Bad for society due to collusion leading to high prices
Examples
Coke vs Pepsi
Microsoft vs apple
What are the two types of collusion
Overt and Tacit
What’s Overt collusion
A formal agreement between 2+ firms
could be a handshake or phone call
illegal tho
What’s Tacit collusion
Unspoken agreement between firms but collusion is implied
Example of collusion
BA and virgin raised prices together to maximise SNP in 2007
CMA informed and questioned employees
Virgin employee cracked and BA fined 270mn
Cartel behaviour
What is cartel behaviour
Two or more firms have agreed to keep prices high at a rate
e.g escobar
What is the prisoners dilemma (game theory)
Model around two prisoners who can eater confess or deny a crime.
consequences depend on what the prisoners choose
links to uncertainty of oligopoly
