T6 - Oliogopoly Flashcards
What is an oligopoly
Where there are a few dominatnt firms
Features of an oligopoly
Interdependece
Possibility of collusion
Product differentiation
Soem barriers to entry
5 firm concerntration ration > 50
Barriers to entry in an oligopoly
Predatory pricing
Advertising
Multiplicity of brands
Intergration
Non price como
Branding
R&D
What does teh way firms compete depend on
Objective of firm
Degree of conetsatbility
Gov reg
What are some outcomes for a oligopoly
Stable prices
Price wars
Collusion
What does a kinked demand curve say happens when prices rise
Demand is negatively elastic, as other firms wont icnrease price, therefore demand is lwo
What does a kinked demand curve say when price fall
Demand is inelastic, it wont chaneg much, due to other firms also lowering prices to stay comeptitive
What happens when MC changes on a kinked demand curve
MR stays the same price doesnt change as firms are willing to keep the intial price
Criticisms of oligopolgy theory
No explantion of price determination
Assumes reaction of firms
Doesnt take into accoutn discounts and offers
Firms may want to lwoer prices
Ignores NPC
Barometric price leaders stuff
Firms cant afford to lower prices
Possible advantages of a monopoly
High profit for firms
Lower prices due to EoS
Wider and easier choice for consumers
Better innovation
Better informtion for consumers
Possible disadvantages of an olgiopoly
Can collude and restrict output and prices
Small competitive firms cant comepete
How firms compete in an oligopoly
Customisation
Loss leaders
Ads
New products
Location
Online reviews
Quality of workers
What is game theory
Where one player’s decision depends on what the other player does
What is formal collusion
Firms have some formal agreement
They agree on P and Q
What are cartels
Firms forming allegiences
High barriers to entry
What makes cartels mroe succesful
More simialr products
What do cartels and collusion allow firms to do
Act as a monopoly
Outcoems for consumers of cartels
More expensive products
Reduction in consuemr suprlus
Increase in non price comp can beenfit consuemrs though
Outcoems for prodcueers of cartels
Increase sales rev and prodi
More comp on no price comp
Further r and d
Higher market share
What is informal collsuion
Where one firm acts as a price leader, and the others follow
Exampels of informal collusion
Barometric price leaders
Parallel priceing
Tactit colllision
What are some pricing technqieus
Transfer pricing
COst push pricing
What si transfer pricing
Where MNCs alter prices and costs to benefit from different tax levels
What is cost push pricing
Once MES is ahcieved, tehy will have a clear indication of costs, and base it from there
How are cartels avoided
Rules
Laws
Regualtion
FInes
what si transfer pricing, proper def
operatign in a place where say low corpriation tax and shit and sellign there at hgiher prices
what is marginal costs pricign
alloactiev efffeciency
what si average cost prciign
atc = ar , nromal proits
what si prfoti maxmsiign pricign level
m c= mr
what si revnue maxamsiign price
mr == 0
what is meant by uncertainty in an oligopoly
uncertainty over hwo rivals will react
how may rivasl react in an ologiopoly
doing the same action
nto followign suit
ifnormal collusion
price wars
what may amkign markerts more conetsable in imeprfectly comeptitve markets liek a monopoly ro olgiopoly lead to
collsuion
restriced out put
predatory pricing
