oligopoly Flashcards
What does ‘oligopoly’ mean?
A market structure dominated by a few firms.
What is the maximum number of firms typically involved in an oligopoly?
No more than seven firms.
What is a high concentration ratio in oligopoly?
Collectively around 70% market share.
What type of goods do firms in an oligopoly typically offer?
Differentiated goods.
What are some major barriers to entry in oligopolistic markets?
- Startup costs
- Economies of scale
- Sunk costs
- Brand loyalty
What does ‘interdependence’ mean in the context of oligopoly?
Firms make decisions based on the actions and reactions of rival firms.
What is a significant consequence of interdependence in oligopoly?
Price rigidity.
What is non-price competition?
Competition based on branding, advertising, and quality of product or service.
Is profit maximization always the sole objective of firms in an oligopoly?
No.
What is a real-life example of a global oligopoly?
The global soft drink industry (Coca-Cola and Pepsi).
What does the kinked demand curve model illustrate?
Interdependence and price rigidity in oligopoly.
What happens to demand when a firm raises its price above P1?
Demand decreases significantly.
What is the result of a firm reducing its price below P1?
Total revenue decreases.
What is the shape of the marginal revenue curve in the kinked demand curve model?
It has a vertical gap and is twice as steep as the average revenue curve.
What happens to price if costs change within the vertical gap of the marginal revenue curve?
Firms may not need to change their price.
What is a potential consequence of price competition in oligopoly?
Price wars.
What type of competition is likely to increase if prices remain sticky in oligopoly?
Non-price competition.
What is a temptation for firms in oligopoly regarding interdependence?
To collude and fix prices.
True or False: Firms in an oligopoly always act independently.
False.
Fill in the blank: Oligopoly is characterized by a few firms that dominate the market with a high _______.
concentration ratio.
