3.4.4 Flashcards
(40 cards)
What is an oligopoly?
Imperfectly competitive industry where there is high level of market concentration
When does an oligopoly exist?
The top 5 firms in the market gave more than 60% of market sales.
What are the key features of oligopolistic industries?
-Price rigidity
-Non-price competition
-interdependent decision making
What are key characteristics of oligopoly’s?
-High barriers to entry and exit
Interdependent start tic decisions by firms
What does strategic Interdependence mean?
Firms output and price decisions are influence by the likely behaviour of competitions
What causes oligopoly industries to be at risk of tacit or explicit collusion?
Interdependence as one decision by one firm do influence and are influence by the decisions if other firms,
What does the concentration ratio measure?
The combined market share of the top number firms in the industry
What does non collusive behaviour mean?
That firms do not work together and instead they compete with each other in terms of price competition and non-price competition
All behaviour by businesses in an oligopoly is strategic and depend on what key objectives?
-Maintaining a satisfactory rate of profitability
-Protecting market share
-Growing user base
-Reacting to decisions if rival firms
Non price competition involves firms focusing on what?
-Quality of product
-design, look and feel
-Environmnetal imoact
-After sale service and availability and cost if replacement parts
-Branding and advertising
What is collusion?
Form of anti-competitive behaviour
Collusion between business can be what?
Horizontal- between firms at same stage if production.
Vertical- between businesses at different stages of production
What are the key aims of business collusion in an oligopoly?
-Businesses in cartel aim to maximise joint profits
-Lowers cost of competition
-Reduces uncertainity
Collusion usually involves some form of agreement to seek higher prices what may it involve?
-Agreeing to increase prices faced by consumers
- Deals between suppliers and retailers
-Monospony pricing
-exclude new firms from deals
-quotas for output
What form of collusive behaviour is deemed to not be illegal by the EU competitive authorities?
-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
What is formal collusion?
When firms make formal agreement to stick to Hugh prices which can involve creations of a Cary’s,
What is tacit collusion?
When firms make informal agreements or collude without actually speaking to rivals
What is price leadership which is tacit collusion?
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
To collide on price producers need some control over?
Market supply and have strong pricing-making power
Collusion through price-fixing or market sharing in an oligopoly is easier to achieve when?
-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
Why do many price fixing cartels often breakdown?
Enforcement problems
Falling market demand
Successful entry of non cartel firms
-whistle-blowing firms
What are costs of collusive behaviour?
Damages consumer welfare
Absence of competition hits efficiency
Reinforces the cartels monopoly power
What are the benefits from collusion?
Social benefits from pharmaceutical research and improves car tech
Fairer prices for producer cooperatives
Profits have value
What is game theory?
The study of how people and businesses behave in strategic situations
