Oligopoly Flashcards
oligopoly
market where a few sellers dominate the industry
Oligopoly assumptions:
- Number of firms
- Price control
- Barriers to entry and exit
- Product
- Dependence
- Short-run economic profit
- Long-run economic profit
- Few
- Much
- Many (scale economies)
- Differentiated or homogenous
- Interdependent
- Possible
- Possible
What are the strategies used by monopolies to reap profit?
- collusion
- competition
collusive oligopolies
firms that actively co-operate to fix prices
collusion
agreement between competitive parties to limit competition and raise prices
cartel
oligopolists agree to take specific market action in a coordinated/sustained effort to enhance profits
How can firms collude?
- restrict output to drive up prices
- fix prices to specified range
- restrict innovation to avoid extra costs of research/development
- no advertising or competition
What are the graphs for a collusive oligopoly? Explain.
like monopoly because it acts as one industry
Examples of a collusive oligopoly
OPEC
tacit collusion
single dominant firm establishes price leadership and smaller firms follow with comparable prices
What are the barriers to collusive oligopolies?
price fixing illegal in many parts of the world
non-collusive oligopoly
firms do not cooperate and instead exist in strategic environment where action and reactions of other firms must be considered
Graph showing non-collusive oligopoly’s dilemma. Explain.
Disadvantages of oligopoly
- lack of allocative and productive efficiency
- a lot of incentive to coordinate/collude
advantages of oligopoly
earn economic profit so can conduct research/development
may yield economies of scale - lower price for consumers
