3.4.4

Question 1

What is an oligopoly?

Answer 1

Imperfectly competitive industry where there is high level of market concentration

Question 2

When does an oligopoly exist?

Answer 2

The top 5 firms in the market gave more than 60% of market sales.

Question 3

What are the key features of oligopolistic industries?

Answer 3

-Price rigidity
-Non-price competition
-interdependent decision making

Question 4

What are key characteristics of oligopoly’s?

Answer 4

-High barriers to entry and exit
Interdependent start tic decisions by firms

Question 5

What does strategic Interdependence mean?

Answer 5

Firms output and price decisions are influence by the likely behaviour of competitions

Question 6

What causes oligopoly industries to be at risk of tacit or explicit collusion?

Answer 6

Interdependence as one decision by one firm do influence and are influence by the decisions if other firms,

Question 7

What does the concentration ratio measure?

Answer 7

The combined market share of the top number firms in the industry

Question 8

What does non collusive behaviour mean?

Answer 8

That firms do not work together and instead they compete with each other in terms of price competition and non-price competition

Question 9

All behaviour by businesses in an oligopoly is strategic and depend on what key objectives?

Answer 9

-Maintaining a satisfactory rate of profitability
-Protecting market share
-Growing user base
-Reacting to decisions if rival firms

Question 10

Non price competition involves firms focusing on what?

Answer 10

-Quality of product
-design, look and feel
-Environmnetal imoact
-After sale service and availability and cost if replacement parts
-Branding and advertising

Question 11

What is collusion?

Answer 11

Form of anti-competitive behaviour

Question 12

Collusion between business can be what?

Answer 12

Horizontal- between firms at same stage if production.
Vertical- between businesses at different stages of production

Question 13

What are the key aims of business collusion in an oligopoly?

Answer 13

-Businesses in cartel aim to maximise joint profits
-Lowers cost of competition
-Reduces uncertainity

Question 14

Collusion usually involves some form of agreement to seek higher prices what may it involve?

Answer 14

-Agreeing to increase prices faced by consumers
- Deals between suppliers and retailers
-Monospony pricing
-exclude new firms from deals
-quotas for output

Question 15

What form of collusive behaviour is deemed to not be illegal by the EU competitive authorities?

Answer 15

-Contributes to improving the production or distrubtion of goods or promoting technical progress in a market
-information sharing designed to give better info to consumers
-promote innovative and inventive behaviour in a market

Question 16

What is formal collusion?

Answer 16

When firms make formal agreement to stick to Hugh prices which can involve creations of a Cary’s,

Question 17

What is tacit collusion?

Answer 17

When firms make informal agreements or collude without actually speaking to rivals

Question 18

What is price leadership which is tacit collusion?

Answer 18

Where firms unofficially try to follow prices set by a market leader.
Enables Hugh prices without meeting rival firms.
This collusion is hard to prove

Question 19

To collide on price producers need some control over?

Answer 19

Market supply and have strong pricing-making power

Question 20

Collusion through price-fixing or market sharing in an oligopoly is easier to achieve when?

Answer 20

-regulators are ineffective
-penalties for collusion are low relative to gain profits
-control market supply
-firms communicate well and trust each other
-brands are strong so consumers will not switch

Question 21

Why do many price fixing cartels often breakdown?

Answer 21

Enforcement problems
Falling market demand
Successful entry of non cartel firms
-whistle-blowing firms

Question 22

What are costs of collusive behaviour?

Answer 22

Damages consumer welfare
Absence of competition hits efficiency
Reinforces the cartels monopoly power

Question 23

What are the benefits from collusion?

Answer 23

Social benefits from pharmaceutical research and improves car tech
Fairer prices for producer cooperatives
Profits have value

Question 24

What is game theory?

Answer 24

The study of how people and businesses behave in strategic situations

Question 25

What is the prisoners dilemma?

Answer 25

Game that illustrates why it is difficult to cooperative even when there is best interest in both parities
Parties eventually reach equilibrium in when b they are both worse off than they would have been

Question 26

What is the key evaporation point of game theory?

Answer 26

Game theory can over-simplify complex
decisions, and when there are more than two rival firms in a market the degree of
complexity increases. Many firms fall back on rules of thumb when making decisions
on price, advertising budgets, production levels and much else beside

Question 27

What is whistle blowing?

Answer 27

When one or more agents in a collusive agreement report it to authorities

Question 28

What are types of price competition in office wars?

Answer 28

Winners and losers

Question 29

Who are the winners in price competition?

Answer 29

Regular consumers see increase in consumer surplus
Managers as sales revenue increase if demand is price elastic

Question 30

Who are the losers from price competition?

Answer 30

Shareholders if prolonged price wards cause lower profits
Suppliers is firms use monospony pieer to lower prices of suppliers
Smaller firms who can’t as Lord possible losses
Governemnt is profits decline corporation tax declines

Question 31

What is break even price

Answer 31

When price = average total cost

Question 32

What is cost plus pricing?

Answer 32

Where a firm fixes the price by adding a fixed percentage profit margin to the average cost of production

Question 33

What is limit pricing?

Answer 33

Pricing by a firm to deter entry or the expansion of the fringe firms,

Question 34

What is peak pricing?

Answer 34

When a business raises its prices at a ti e when demand has reached a peak might be justified due to higher marginal costs of supply at leak times

Question 35

What is penetration pricing

Answer 35

Proving policy used to enter a new market by setting a lower price

Question 36

What is predatory pricing?

Answer 36

Drives competition out of the market by setting low or ed or selling below average variable cost

Question 37

What is abnormal profit?

Answer 37

Any profit in excess of normal profit

Question 38

What is altruism?

Answer 38

Disinterested and selfless concern for well-being of others

Question 39

What is duopoly?

Answer 39

Market dominated by two rival firms

Question 40

What is duospony?

Answer 40

Two major buyers of a good or service in a market