Oligopoly Flashcards
Definition
A market where there is a high market concentration ratio, a market structure dominated by a few large firms.
Characteristics
High barriers to entry/exit
Supernormal profit is made in the long run
Differentiated product
High level of non-price competition
Kinked Demand (KD) Curve Definition
Where oligopolies follow price reduction, but not price rises
KD IN/Elastic Curves
Above P, its elastic, firms don’t follow price rises and lose lots of sales, don’t follow price reductions demand inelastic other firms don’t follow result limited increase in sales.
KD Discontinuity
This is because one demand curve takes over from another, so MR changes, as a result a change in MC doesn’t change the profit maximising output
Game Theory
This is where the actions of firms play a role in the actions of the other firms in decision making and the implications of the decision in the future.
Collusion Definition
A group of firms or an industry act together to to set prices/restrict output.
Game Theory Definition
The means of modelling the behaviour of firms. The consequences of one firms decision on other firms.
