Oligopoly

Question 1

Describe oligopoly in terms of firms

Answer 1

• 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

Question 2

Interdependent

Answer 2

• 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

Question 3

What is a tactic oligopoly can adapt

Answer 3

• 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.

Question 4

What happens if decrease price

Answer 4

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

Question 5

Game theory

Answer 5

• 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.