Oligopoly Flashcards
Characteristic(s): Barriers to entry
High BTE
Characteristic(s): Number of firms
A few large firms dominate the industry
Characteristic(s) that differentiate Oligopoly from the other markets
Mutual interdependence of firms
Characteristic(s): Type of products
Differentiated or homogenous products
Characteristic(s): Type of knowledge
Imperfect knowledge
What does productive efficiency depends on (firms’ POV)?
X-inefficiency, which is based on level of competition in market
Why productive inefficient (society’s POV)?
not likely to produce on min point of LRAC when maximising profits
Why allocative inefficient?
Charges a price that is greater than MC when maximising profits; and is likely to charge a very high price which increases the divergence between P and MC
What does dynamic efficiency (incentive) depends on?
Model of oligopoly
Models (P.K.C.)
Price leadership model (tacit collusion)
Kinked Demand Curve model (non-collusion)
Cartel (open collusion)
Why is it dynamic efficient for Price leadership model (tacit collusion) or Kinked Demand Curve model (non-collusion)?
Have incentive to innovate (due to high BTE)
Why is it less dynamic efficient for Cartel (open collusion)?
high market power and inability to change output → complacency → less incentive to innovate
Why dynamic efficient?
Have ability to innovate due to past accumulated LR normal profits because of high BTE
Why not favourable in terms of EQUITY?
Aggravates inequity (LR supernormal profits at expense of consumers)
Why favourable in terms of CONSUMER CHOICE?
Can provide differentiated products (assuming non-homogenous products)
