Oligopoly Flashcards Preview

Economics > Oligopoly > Flashcards

Flashcards in Oligopoly Deck (5)
Loading flashcards...
1
Q

Describe oligopoly in terms of firms

A
  • very small number of firms dominating market
  • restricted entry n exit
  • have products that are similar n diff with downward slopping that is relatively inelastic
  • examples - cars, cement & supermarket
2
Q

Interdependent

A
  • known to be interdependent as actions of other firm will affect them
  • will then need to make decisions based on how firms behave
  • example - Mars - decide increase / decrease their price they will need to think of their rivals such as nestle & Cadbury
3
Q

What is a tactic oligopoly can adapt

A
  • Tatic - is colluding together acti as a monopoly called a cartel
  • decide between the, who is going produce what known as a quota.
  • firms may do opposite - competing against each other - price war
  • 1939 - theory - kinked demand curve established within USA - Paul Sweezy & UK - R.L Hall & C J Hitch.
  • based on principle that if oligopolies increase its price but if enemies don’t follow suit by keeping prices same - gain customers from other company.
4
Q

What happens if decrease price

A
  • decrease prices will cause only modest increase in scales as other firms will low prices too.
  • demand is relatively inelastic under kink curve.
5
Q

Game theory

A
  • game theory is way modelling situations where outcome for individual or firm depends on choice made by others.
  • game theory examines various strategies that firms can adopt when the outcomes of each is not certain.
  • firms may gain strategic advantage over its rivals by giving first to take actions and decisions tree can be constructed to show possible sequence of moves in multi - move game
  • in Nash equilibrium each player selects the best strategy given strategies selected by rivals.