Theme 3:4.4:Oligopoly

Question 1

what is an oligopoly?

Answer 1

where a few firms have control over the market
e.g. OPEC,UK supermarket industry

Question 2

characteristics of an oligopoly.

Answer 2

1) high barriers to entry
2) interdependence
3) high concentration ratio
4) differentiated goods(price makers)
5)profit max not sole objective

Question 3

how to you calculate the n-firm concentration ratios

Answer 3

add up the the combined market share of the top few
firms in a market.

Question 4

what is the significance of the n-firm concentration ratios?

Answer 4

The higher the concentration ratio, the less competitive the market, since fewer firms are supplying the bulk of the market.

Question 5

what is collusive behaviour?

Answer 5

businesses working together to set prices high and restrict output

Question 6

Reasons for collusive behaviour.

Answer 6

-lowers consumer surplus
creates higher prices and profits

-restrict output which increases price and deters new entrants

lowers the cost of competition

Question 7

Reasons for non-collusive behaviour.

Answer 7

firms compete with each other and follow their own price and output policy independently.

Question 8

kinked demand curve diagram

Question 9

draw a game theory diagram based on Mcdonalds and Bking selling at £5 and £7

Question 10

where is nash equilibrium in game theoiry

Question 11

o

Question 12

types of price competition

Answer 12

price wars-mostly in non-price competitive markets

predatory pricing- driving competitors out of the market by setting low prices or selling below AC

limit pricing-to deter new entrants from joining the market

break-even price- when price is equal to average costs.

Question 13

non price competition

Answer 13

quality of good or service
branding
advertisement
loyalty schemes
innovation

Question 14

type of efficiencies in this market?

Answer 14

dynamic efficiency in SR and LR

Question 15

interdependence

Answer 15

firms don’t make decisions on their own and are influenced by competitors

Question 16

pros of collusion

Answer 16

research and development:
into pharmaceuticals
better car safety technology

Question 17

cons of collusion

Answer 17

damages consumer welfare
-high prices
-lack of allocative efficiency
-regressive impact

loss of competition:
-loss of x-efficiency
-less incentive to innovate
-hard for new entrants to join the market

Question 18

penalties for businesses engaging in price fixing cartels

Answer 18

fines of up to 10% of their worldwide turnover
up to five years imprisonment
15 years disqualification

Question 19

key evaluation point for game theory

Answer 19

it over simplifies complex decisions and when there are more than 2 rival firms complexity increases .

Question 20

factors promoting a competitive oligopoly

Answer 20

less concentrated oligopoly
new market entry possible
homogenous goods
saturated market

Question 21

factors promoting a collusive oligopoly

Answer 21

small number of firms
similar costs
high barriers to entry
consumer inetera-cba to switch
consumer loyalty

Question 22

perfomance evaluation of a competitive oligopoly

Answer 22

pros and cons of a competitive market e.g. x effiency, allocative efficiency and productive

Question 23

performance evaluation of a collusive oligopoly

Answer 23

pros and cons of a monopoly e.g. dynamic efficiency