Oligopoly Flashcards
What is an oligopoly
An imperfectly competitive industry where there is a high level of market concentration
What is the concentration ratio for when an oligopoly typically exists
Too 5 firms = 60% total market sales
Assumptions of the model
- branded products
- barriers to entry and exit
- interdependent strategic decisions by firms
What does strategic interdependence mean
That one firm’s output and price decisions are influenced by the likely behaviour of competitors
Is their strategic interdependence within oligopolies?
Yes
Because of strategic interdependence what are oligopolistic industries at risk of
Tacit of explicit collusion which can lead to allegations of anti-competitive behaviour
Uncertainty??
Yes.
What does the PED in oligopolistic markets depend on
The likely reaction of rivals to changes in one firm’s price and output
Will rivals follow a price increase
No
Will rivals follow a price decrease
Yes
What creates the kinked demand curve
Demand is relatively elastic following s price rise and relatively inelastic after s price fall
MR is always …
Twice as steep as average revenue
What will there be two of if AR is kinked
Marginal revenue curves
What is one of they key predictions of the kinked demand curve model
That prices will be rigid or ‘sticky’ even when there is a change in the marginal costs of supply
Do firms have a price setting power
Yes but they may be reluctant to use it
