Oligopoly

Question 0

Are there barriers to entry in an oligopoly?

Answer 0

Significant barriers to entry and exit likely

Question 1

How many firms are there in an oligopoly?

Answer 1

A few large firms (alongside a number of small firms)

Question 2

How are prices decided?

Answer 2

Pric makers, but price rigidity due to kinked demand theory therefore firms highly interdependent

Question 3

How do firms compete?

Answer 3

Product differentiation
Non price competition
Possible open or tacit collusion

Question 4

Using a pay off matrix, what is the best individual firm strategy?

Answer 4

Charge the lowest price

Question 5

Why might collusion not occur?

Answer 5

Firms may renege on deal due to lack of trust and best individual strategy

Question 6

Name 5 types of non price competition

Answer 6

Quality
Brand loyalty
Special offers
Product differentiation
Loyalty cards

Question 7

Name 3 types of pricing strategy

Answer 7

Predatory pricing
Limit pricing
Going rate

Question 8

What type of pricing strategy might be used for a) new businesses b) new products?

Answer 8

a) penetrative pricing - relatively low in order to build market share
b) price skimming - high price set before competitors enter the market, so little or no competition

Question 9

What is predatory pricing?

Answer 9

When a dominant firm purposely charges low prices in order to restrict competition - illegal

Question 10

What is price leadership

Answer 10

A form of tacit(silent) collusion where the dominant firm sets the price and price changes that all the other firms follow