Oligopolies

• What is the theme discussed in the study material?

  Oligopoly
• What is a key characteristic of an oligopoly market structure?


  There are a few firms dominating the market.
• How is the concentration ratio used in oligopoly analysis?


  It measures the market power of the largest firms.
• What is the three-firm concentration ratio in the first example provided?


  72%
• What does a high concentration ratio indicate about market competition?


  It indicates that a few firms hold a significant market share.
• What is meant by differentiated products in an oligopoly?


  Products that have both actual and artificial differences.
• What are barriers to entry in an oligopoly?


  High obstacles that prevent new firms from entering the market.
• Why is imperfect information significant in oligopoly markets?


  It leads to artificial differentiation among products.
• What does interdependence among firms in an oligopoly imply?


  Firms must consider the reactions of other firms when making decisions.
• What is the kinked demand curve in the context of oligopoly?


  It illustrates price stability due to interdependent pricing strategies.
• What does the kink in the demand curve signify for marginal revenue?


  It creates a discontinuity in the marginal revenue curve.
• How does a small change in marginal cost affect profit maximization in oligopoly?


  A small change does not alter the profit-maximizing quantity.
• What happens to profits when extra costs arise in an oligopoly?


  Extra costs are absorbed by reducing profits, not by raising prices.
• What is a limitation of the kinked demand curve model?


  It does not explain how the initial price was determined.
• Why is game theory relevant in oligopoly studies?


  It helps analyze how firms determine their behavior based on rivals' actions.
• What are the main topics associated with oligopolies?

  • Price and non-price competition
  • Game Theory
  • Collusion
• What are the types of price competition in oligopoly?


  • Price wars
  • Predatory pricing
  • Limit pricing
• What characterizes a price war in an oligopoly?


  Repeated cutting of prices below those of competitors.
• What are the short-term effects of price wars on consumers?


  Price wars benefit consumers with lower prices.
• What is a potential long-term effect of price wars on the market?


  Prices may increase higher than before the price war started.
• What are some reasons that price wars occur in oligopolies?


  Product differentiation and penetration pricing are key reasons.
• What is predatory pricing in an oligopoly context?

  Setting prices very low to eliminate competition.
• What is the impact of a price war on smaller firms in the industry?

  Smaller firms may be forced to close due to reduced profit margins.
• What does price stickiness mean in oligopoly markets?


  Prices do not change easily due to competitor reactions.
• What is the shutdown point in relation to predatory pricing?


  It is when prices are set below average variable costs.
• What is partial predatory pricing also known as?


  Loss leaders.
• What is limit pricing aimed at preventing?

  It aims to prevent potential competitors from entering the market.
• What is a challenge of implementing limit pricing?


  Established firms may lack accurate information about potential entrants' costs.
• What are the strategies of non-price competition in oligopoly?


  • Product differentiation
  • Large scale advertising
  • Heavy marketing
  • Brand names
  • Packaging
  • Free gifts
  • Competitions
  • Sponsorship
  • Excellent customer service
  • Loyalty cards
  • After-sales service
• What are the key features of oligopolistic markets?

  • Interdependence among firms
  • Price stability due to kinked demand curve
  • Potential for price wars
  • Focus on non-price competition
  • Use of game theory to analyze strategies
• What is the significance of interdependence in oligopolistic markets?


  It creates uncertainty in the outcomes of firms' strategies.
• How does collusion affect uncertainty in oligopolistic markets?


  It may reduce uncertainty and avoid mutual damage among firms.