Oligopoly

Question 1

oligopoly

Answer 1

small number of dominating firms, highly concentrated, homogenous products, high barriers to entry, profit maximisers, compete on price

Question 2

duopoly

Answer 2

oligopoly of two firms

Question 3

examples

Answer 3

supermarket industry, airlines, energy (big six)

Question 4

Cournot Model

Answer 4

compete on output, homogenous products, cannot collude or form a cartel, aim to profit maximise

-move at the same time (normal game)

Question 5

stakelberg model

Answer 5

dynamic game, the leader moves and then the rest follow. the leader can set output before the competing firms

they sell homogenous products, the leader might be better known and have brain equity

Question 6

bertrand model

Answer 6

compete on price selling identical products, they will buy from the firms who offers the lowest price, for example pepsi and coca cola, selling identical product and faces a constant marginal/average cost curve

Question 7

examples of games

Answer 7

compensation and incentive - decide what promotions and bonuses to give
research and development - investment given available technologies and forecasts of future markets
monetary policy - central banks make decisions about monetary supply in response to inflation and growth
entry into markets - firms make decisions about whether to enter the market and what product to introduce

Question 8

cartels

Answer 8

is an agreement between two firms to control prices, output and restrict the entry of new firms - they are formed if the members of the cartel believe that they can raise their profits by coordinating their actions

Question 9

laws against cartels

Answer 9

heaving fines.
as they’re illegal - they are very secretive and their existence is hard to find
they operate believing that they can avoid being caught out
some firms are able to coordinate their activity without explicitly colluding

Question 10

opec

Answer 10

organisation of petroleum exporting countries!

set up in the 1960’s including 5 major oil exporting coutries, IRAN IRAQ VENEZUELA SAUDI ARABIA KUWAI

Question 11

why do they fail?

Answer 11

• cartels fail if a member decides to cheat; that they violate the agreement for personal gains (profit reasons); prisoners dilemma
• incentive to sell out the other participants due to greed - this would then destroy a country’s position in the market and hence would have to leave
• if non cartel members can supply consumers with large quantities of goods