Oligopoly

Question 1

types of imperfect competition

Answer 1

oligopoly
duopoly
monopoly
monopolistic competition

Question 2

what is oligopoly

Answer 2

a market with only a few sellers, each offering a similar or identical product to the others,

Question 3

what is monopolistic competition

Answer 3

a market with many firms selling products that are similar but not identical

Question 4

as we move towards _____, outcomes for consumers become better

Answer 4

perfect market structures

Question 5

examples of oligopolies

Answer 5

fast food chains,
airlines
books

Question 6

what is concentration ratio

Answer 6

the proportion of total market share accounted for by a particular number of firms

Question 7

key features of oligopoly because of few sellers

Answer 7

tension between cooperation and self interest

Question 8

why are oligopolists better off acting as monopolists

Answer 8

to produce a small quantity and charge a price above the marginal cost so that their outcomes are better

Question 9

what is a duopoly

Answer 9

an oligopoly with 2 members - simplest type

Question 10

what is collusion

Answer 10

an agreement among firms in a market about quantities to produce and prices to charge

Question 11

what is a cartel

Answer 11

a group of firms acting in unison eg oil cartels

Question 12

is agreements fixing prices legal

Answer 12

no

Question 13

for collusion to work

Answer 13

• demand musts be inelastic
• few substitutes
• members must play by the rules

Question 14

why do oligopolists not end up reaching a monopoly outcome

Answer 14

because theyre too worried about self interest

Question 15

what is game theory

Answer 15

the study of how people behave in strategic situations

Question 16

what does the profit of a firm in an oligopoly depend on

Answer 16

how much they produce themselves

how much others produce

Question 17

in making decisions, firms must also consider what the decisions of their competitors should be. This is because the firms are ——

Answer 17

interdependent

Question 18

what is nash equilibrium

Answer 18

a situation in which economic actors interacting with each other choose their best strategy given the strategy that all the others have chosen

Question 19

what is the dominant strategy

Answer 19

the best strategy for a player to follow regardless of the strategies chosen by other players

Question 20

how can strategies be represented

Answer 20

a payoff matrix

Question 21

how can pay offs be optimal for the firms in an oligopoly

Answer 21

if they co operate

Question 22

how to exit the game scenario

Answer 22

play the game over and over to learn the behaviors of the other players

Question 23

will firms that care about profit chose to cooperate or not

Answer 23

cooperate as gains will be better over time

Question 24

how is cooperation between firms stopped

Answer 24

government intervention, to offset market power

Question 25

benefits of government intervention in imperfect competition

Answer 25

downward pressure on costs is better for public

maximises transparency

Question 26

why are competition laws needed

Answer 26

to reach optimal outcome for consumers and to protect them.

Question 27

is cooperation between oligopolies desirable from the standpoint of society. Why?

Answer 27

no, leads to production that is too low and prices that are too high

Question 28

how does the eu stop firms from monopolising their market

Answer 28

european commission has a number of investagative powers to help apply the eu antitrust laws

they fine businesses who violate the laws

Question 29

how do they government make money from taxing cigarettes

Answer 29

they tax them because they know they are bad for health and society, but they know people will still buy them and demand will never drop very low so they make a profit