Chapter 15 (1)

Question 1

OLIGOPOLY

Answer 1

► Describes a market w/ only a few firms

► These companies = sell a product/service that may or may not be completely standardized –> but is similar enough that they’re in competition

Question 2

OLIGOPOLY Examples:

Answer 2

► Wireless network providers (Canadian market: Bell Canada, Rogers, and Telus)

► Fast-food burger chains (i.e., McDonald’s, Harvey’s, and Wendy’s)

Question 3

Defining features of an oligopoly:

Answer 3

► Price and quantity set by an individual firms affect the others’ profits
○ This stands in contrast to firms in perfectly competitive markets or monopolists

► Perfectly competitive market: other firms’ actions cannot affect the market

► (True) monopolist: there are NO other firms (unless another firm is trying to create a product that can substitute for yours)

Question 4

If you are in charge of a company in an oligopoly

–> it is a vital part of your job to keep an eye on competitors

Answer 4

The shareholders of Wendy’s would not be impressed if the CEO = had no idea that McDonald’ s = had just introduced a new kind of burger / that Harvey’s was offering promotional discounts on soft drinks

Question 5

Oligopolies are also characterized by the existence of some barriers to entry

Answer 5

○ Monopoly:
○ Perfect Competition:

► Oligopolies are somewhere in the middle

○ It would be possible to set up as a wireless carrier –> but expensive to construct the infrastructure

► It would be possible to break into the national burger chain market –> but though to overcome established brand loyalties

Question 6

MONOPOLISTIC COMPETITION

Answer 6

► Describes a market w/ many firms that sell goods & services that are similar –> but slightly different

► Perfect competition: consumers are indifferent between the products of competing firms
Monopoly: product has no close substitutes

► Between these two extremes = markets in which products have substitutes that are close but not perfect

► Consumers might be willing to pay a bit extra –> but if the price differential = too large, they will choose a substitute product

Question 7

Name: Monopolistic competition - sounds like a contradiction in terms

Answer 7

but it expresses the idea that firms in such a market have a kind of monopoly –> but in a limited sense

Question 8

Oligopoly & monopolistic competition –> are often found together

Answer 8

► Oligopoly: about the # of firms

► Monopolistic competition: about the variety of products

► Thus, you can have one w/out the other

► Oligopolies can exist when products are standardized –> monopolistic competition can exist when there are many small firms