Oligopoly Flashcards

1
Q

What is an oligopoly

A

An imperfectly competitive industry where there is a high level of market concentration

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2
Q

What is the concentration ratio for when an oligopoly typically exists

A

Too 5 firms = 60% total market sales

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3
Q

Assumptions of the model

A
  • branded products
  • barriers to entry and exit
  • interdependent strategic decisions by firms
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4
Q

What does strategic interdependence mean

A

That one firm’s output and price decisions are influenced by the likely behaviour of competitors

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5
Q

Is their strategic interdependence within oligopolies?

A

Yes

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6
Q

Because of strategic interdependence what are oligopolistic industries at risk of

A

Tacit of explicit collusion which can lead to allegations of anti-competitive behaviour

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7
Q

Uncertainty??

A

Yes.

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8
Q

What does the PED in oligopolistic markets depend on

A

The likely reaction of rivals to changes in one firm’s price and output

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9
Q

Will rivals follow a price increase

A

No

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10
Q

Will rivals follow a price decrease

A

Yes

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11
Q

What creates the kinked demand curve

A

Demand is relatively elastic following s price rise and relatively inelastic after s price fall

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12
Q

MR is always …

A

Twice as steep as average revenue

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13
Q

What will there be two of if AR is kinked

A

Marginal revenue curves

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14
Q

What is one of they key predictions of the kinked demand curve model

A

That prices will be rigid or ‘sticky’ even when there is a change in the marginal costs of supply

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15
Q

Do firms have a price setting power

A

Yes but they may be reluctant to use it

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16
Q

What is another feature of a non-collusive oligopoly

A

Periodic and fierce price wars can be a characteristic of market competition

17
Q

What may price wars lead to

A

Short run increases in sales and revenues, but may not be in the long-term commercial interests of a business