Oligopoly Flashcards
What is the definition of oligopoly?
A market structure dominated by a few firms with high concentration ratios, typically no more than seven firms with around 70% market share.
What does ‘interdependence’ mean in the context of oligopoly?
Firms make decisions based on the actions and reactions of rival firms, not independently.
What are the major barriers to entry in oligopolistic markets?
- Startup costs
- Economies of scale
- Sunk costs
- Brand loyalty
What is price rigidity in oligopoly?
Prices tend to be sticky or rigid due to interdependence among firms.
What is a key characteristic of goods sold in oligopolistic markets?
Firms sell differentiated or unique goods.
True or False: Profit maximization is always the sole objective of firms in an oligopoly.
False
What is the kinked demand curve model used for?
To illustrate interdependence and price rigidity in oligopoly.
In the kinked demand curve model, what happens if a firm raises its price above P1?
The firm will lose market share and total revenue will decrease.
Fill in the blank: In oligopoly, firms engage in _______ competition, focusing on branding and advertising.
non-price
What happens when a firm reduces its price below P1 in an oligopoly?
Total revenue decreases due to price inelastic demand.
What is the significance of the marginal revenue curve in the kinked demand curve model?
It illustrates that firms do not need to change their price even if costs change within a certain range.
What is a potential negative consequence of interdependence in oligopoly?
It can lead to a temptation to collude and fix prices, reducing competition.
What is a common real-world example of an oligopoly?
The global soft drink industry dominated by Coca-Cola and Pepsi.
What is the outcome if firms in an oligopoly attempt to engage in price wars?
They may still try to reduce prices to gain market share, despite it being counterproductive.
Name two industries that exemplify oligopoly in the UK.
- Supermarket industry
- Energy industry
What is the relationship between price elasticity and the kinked demand curve at P1?
Above P1, demand is price elastic; below P1, demand is price inelastic.
What is a defining feature of oligopolistic markets?
High barriers to entry and exit.
What type of competition is often seen in oligopolistic markets due to price rigidity?
Non-price competition.
What does the term ‘dog fight for market share’ refer to in oligopolistic markets?
The intense competition among firms to maintain or increase their market share.
Fill in the blank: OPEC is an example of a _______ oligopoly.
legal
What is the potential impact of collusion in an oligopoly?
It can lead to higher prices and profits, similar to monopoly behavior.
