Oligopoly Flashcards
types of imperfect competition
oligopoly
duopoly
monopoly
monopolistic competition
what is oligopoly
a market with only a few sellers, each offering a similar or identical product to the others,
what is monopolistic competition
a market with many firms selling products that are similar but not identical
as we move towards _____, outcomes for consumers become better
perfect market structures
examples of oligopolies
fast food chains,
airlines
books
what is concentration ratio
the proportion of total market share accounted for by a particular number of firms
key features of oligopoly because of few sellers
tension between cooperation and self interest
why are oligopolists better off acting as monopolists
to produce a small quantity and charge a price above the marginal cost so that their outcomes are better
what is a duopoly
an oligopoly with 2 members - simplest type
what is collusion
an agreement among firms in a market about quantities to produce and prices to charge
what is a cartel
a group of firms acting in unison eg oil cartels
is agreements fixing prices legal
no
for collusion to work
- demand musts be inelastic
- few substitutes
- members must play by the rules
why do oligopolists not end up reaching a monopoly outcome
because theyre too worried about self interest
what is game theory
the study of how people behave in strategic situations
what does the profit of a firm in an oligopoly depend on
how much they produce themselves
how much others produce
in making decisions, firms must also consider what the decisions of their competitors should be. This is because the firms are ——
interdependent
what is nash equilibrium
a situation in which economic actors interacting with each other choose their best strategy given the strategy that all the others have chosen
what is the dominant strategy
the best strategy for a player to follow regardless of the strategies chosen by other players
how can strategies be represented
a payoff matrix
how can pay offs be optimal for the firms in an oligopoly
if they co operate
how to exit the game scenario
play the game over and over to learn the behaviors of the other players
will firms that care about profit chose to cooperate or not
cooperate as gains will be better over time
how is cooperation between firms stopped
government intervention, to offset market power
benefits of government intervention in imperfect competition
downward pressure on costs is better for public
maximises transparency
why are competition laws needed
to reach optimal outcome for consumers and to protect them.
is cooperation between oligopolies desirable from the standpoint of society. Why?
no, leads to production that is too low and prices that are too high
how does the eu stop firms from monopolising their market
european commission has a number of investagative powers to help apply the eu antitrust laws
they fine businesses who violate the laws
how do they government make money from taxing cigarettes
they tax them because they know they are bad for health and society, but they know people will still buy them and demand will never drop very low so they make a profit
