Oligopolies

Question 1

oligopoly

Answer 1

a market structure where a few large firms dominate the industry and have significant market power

Question 2

Why are there high barriers to entry and exit in an oligopoly?

Answer 2

Entry is difficult due to dominance of a few large firms and high start-up costs (e.g. billions to start a renewable energy company).

Exit is difficult due to high sunk costs (e.g. billions spent on 5G auctions can’t be recovered).

Question 3

What does a high concentration ratio mean in an oligopoly?

Answer 3

It shows the % of market share held by the top firms (e.g. top 5 or top 10).
A higher ratio with fewer firms means more market power is concentrated.
Example: UK supermarkets have a 5-firm concentration ratio of around 67%.

Question 4

Q: What does interdependence of firms mean in an oligopoly

Answer 4

Firms closely watch and react to each other’s behaviour because there are few competitors.
This interdependence leads to strategic decision-making, often analysed using game theory.

Question 5

what is a concentration ratio

Answer 5

A concentration ratio reveals what percentage of the total market share a specific number of firms have

A 5-firm concentration reveals the total market share (concentration) of the top 5 firms in the industry

Question 6

How are products differentiated in an oligopoly?

Answer 6

• Products are often highly differentiated, especially through branding.
• Even if the products are similar (e.g. petrol), firms create strong brand identities so consumers see them as different and become brand loyal.

Question 7

what is a one-firm concetration ratio

Answer 7

A one-firm concentration ratio of 100% would be a pure monopoly

Question 8

Collusive behaviour

Answer 8

in oligopolies occurs when firms cooperate to fix prices and restrict output
They cease to compete as vigorously as they can

Question 9

Non collusive behaviour

Answer 9

in oligopolies occurs when firms actively compete to maintain/increase market share