Chapter 11: Oligopoly

Question 1

What is an Oligopoly?

Answer 1

A handful of firms producing all or most of a good or services supply

Question 2

What is a Contestable Market?

Answer 2

A imperfect competitive industry that can be entered when prices and profits increase

Question 3

What is a concentration ratio?

Answer 3

How much output is produced by an industries largest firms

Question 4

An Oligopolist is …

Answer 4

a firm in a oligopoly

Question 5

Market Share

Answer 5

percent of total market output of a firm

Question 6

Product Differentiation

Answer 6

Features that make a product more unique or appealing than another

Question 7

A Payoff Matrix

Answer 7

A table representing the risks and rewards of an alternative decision

Question 8

Game Theory

Answer 8

Study of strategic decision making between firms

Question 9

Price fixing occurs when..

Answer 9

Firms agree on what price a good sells at

Question 10

Price leadership is…

Answer 10

A pattern allowing a firm to establish a market price for all firms

Question 11

A Cartel is..

Answer 11

A group of firms agreeing to fixed prices and product output

Question 12

Predatory Pricing is

Answer 12

reducing prices in order to drive out competition

Question 13

The Herfindahl-Hirshman Index…

Answer 13

measures the industry concentration of firms, and their size

Question 14

Determinants of Market Power include..

Answer 14

Number of Producers, size of firms, barriers of entry, and availability of substitues

Question 15

What does a Concentration Ratio Measure?

Answer 15

Market Power

Question 16

At what percent of concentration would a industry be considered a oligopoly?

Answer 16

60% or above

Question 17

How would you measure Market Power?

Answer 17

by an industrys concentration ratio, or firm size

Question 18

An Increase in Sales at Prevailing Market Price

Answer 18

reduces shares of the other oligopolists

Question 19

An increase in sales at reduced prices..

Answer 19

expands the total market sales w/o reducing other oligopolies sales

Question 20

In what ways can a oligopoly retaliate?

Answer 20

Increased Advertising, and Price Cuts

Question 21

Price cuts force competition to what?

Answer 21

Cut prices, or accept a reduced market share

Question 22

What would happen if a firm uses price cuts to increase their market share?

Answer 22

a general reduction in the market price

Question 23

What does the Kinked Demand Curve demonstrate?

Answer 23

the interdependent behavior of oligopolys

Question 24

The Shape of a Oligopoly’s demand curve depends on what?

Answer 24

the responses of its rivals to a change in the price of its own output

Question 25

Demand curves will be kinked if what happens?

Answer 25

Oligopoly rivals match price reduction

Question 26

What happens when rivals don't match a reduction in price?

Answer 26

Sales would increase dramatically to the firm with the lowest priced good

Question 27

What would happen if rivals match a reduction in price?

Answer 27

Monthly sales of the lowest-priced good would expand slightly

Question 28

What would happen if rivals don't match a increase in price?

Answer 28

Nothing

Question 29

When would a rival oligopoly match a price increase?

Answer 29

when an industry wide price increase occurs

Question 30

What would happen if rivals increased their prices?

Answer 30

Rivals may increase prices to gain additional prices; but risk losing demand

Question 31

"Game Theory"

Answer 31

Oligopolists must consider potential responses of rivals when coming up with price / output strategies

Question 32

Payoff Matrix

Answer 32

Summarizes profit consequences depending on a scenario

Question 33

How is Expected profit (or losses) found?

Answer 33

by using a risk assessment

Question 34

What prevents oligopolys from taking price rivalry too far?

Answer 34

threats of mutual destruction

Question 35

Expected Payoff Formula

Answer 35

[ Probability of Matching x Loss from cut ] + [ Probability of Not Matching x Gain from cut]

Question 36

Profits are maxed at what rate of output (Oligopoly)

Answer 36

MC = MR

Question 37

Oligopolys try and mimic

Answer 37

Monopolys

Question 38

How do Oligopolist avoid self-destructive behavior?

Answer 38

Maintaining maximized output and prices, and ensuring firms are content with their market shares

Question 39

How do companys attain price leadership?

Answer 39

by reading industry publications and shifting- prices as needed

Question 40

Oligopolys become cartels when what occurs..

Answer 40

production-sharing agreements

Question 41

Market Share Allocation Formula

Answer 41

revenue / total sales

Question 42

What barriers to entry do Oligopolists use to keep competitors out?

Answer 42

Patents, Distribution Control, Input Lock-ups, Mergers, Acquisition, Government Regulation,Non-Price Competition, Training, and Network Economies