Oligopoly Flashcards
Features of an oligopoly
firms must be interdependent, there are high barriers to entry, non price competition
Interdependence
where the actions by one firm will have an affect on the sales and revenue of other large firms in the market
concentration ratio
A ratio which indicates the total market share of a number of leading firms in a market
Explain the kinked demand curve
above P there will be substitutes so a rise in price would cause revenue to fall therefor elastic above P, below P it is thought if price is lowered then all firms in the market will lower there prices
Are oligopolies statically efficient ?
No, P doesn’t equal MC and no AC curve on oligopoly graph
Are oligopolies dynamically efficient ?
Both the means and the incentive for dynamic efficiency so yes !
Weaknesses of the kinked demand curve
Where did P originate from, ignores effects of non price competition, assumes reactions of firms to change in price of other firms, forgets about brand loyalties
Collusion
Where firms cooperate in their pricing, marketing, R&D, and/or output policies
Vertical collusion
firms agreeing with producers in production processes to only give the best product to one firm
Horizontal collusion
Firms that compete working together
Explicit vs. tacit
explicit is open and known, whereas tacit is private
Formal collusions
Restrictive agreements (heinz), price fixing, dividing the market by area, predatory pricing, cartels
