Oligopolies Flashcards
(59 cards)
oligopoly d
where a few large firms have the majority of the market share
concentration ratio d
proportion of the market share held by the dominant firms
examples of industry where there is oligopoly power
car production, banking, insurance and consumer electrics
what does a concentration ratio of 5:80 mean
the five largest firms control 80 % of the market share
what is an example of an industry with high MES
car industry
what barriers to entry can oligopolists use
predatory pricing, advertising, multiplicity of brands, integration, non-price competition, branding, R&D
how can oligopolists use predatory pricing as a barrier to entry
lower its price to a level where other firms are unable to compete
predatory pricing d
setting a price that may bankrupt a competitor firm in order to try to take it over
how can oligopolists use advertising as a barrier to entry
large firms spread cost of advertising over thousands of units which reduces unit cost, new entrants have to match level of advertising but without the volume of output
how can oligopolists use multiplicity of brands as a barrier to entry
an existing firm can capture a larger share of the market by running a large number of brands
how can oligopolists use integration as a barrier to entry
enables them to reduce costs and use predatory pricing to force small competitors out of business
how can oligopolists use non-price competition as a barrier to entry
loyalty cards or buy one get one free (BOGOF)
how can oligopolists use branding as a barrier to entry
brand image is created through advertising and should make the demand curve more inelastic
how can oligopolists use R&D as a barrier to entry
firms can come up with products that give them an edge over competitors
interdependent d
where actions by one firm will have an effect on the sales and revenue of other large firms in the market
price war d
where firms competitively lower prices to increase their market share
reactive behaviour d
the action taken by firms in response to a change in behaviour of a competitor
kinked demand curve d
a theoretical approach that endeavours to analyse the reasons for price stability in oligopoly
brand loyalty d
a measure indicating the degree to which consumers will purchase a firm’s product rather than a competing firm’s product
why is kinked demand curve elastic above the set price
competitors will keep their prices the same so an increase in price will lead to a fall in total revenue
why is kinked demand curve inelastic below the set price
if one firm lowers then others will lower as well so the resulting price war means that their total revenue will fall
why is there a discontinuous marginal revenue curve for kinked demand curve
because at the set price level the marginal revenue from the first part of the curve jumps down to join the second marginal revenue
what happens if the marginal cost curve shifts up or down in kinked demand curve
oligopolist absorbs the whole cost by taking a cut in profit or their profits increase in the case of a fall in MC
why do oligopolists directly take consequences of change in MC for kinked demand curve
if it is in gap where there is the discontinuous marginal revenue curve then output will stay the same and so will price so they take the hit
