3.3.3 Oligopoly

• In an oligopoly, there are typically between 2 and 10 major firms.
• Why are barriers to entry significant in an oligopoly?

  They prevent new firms
• What type of product differentiation exists in an oligopoly?

  Moderate to high
• How do firms in an oligopoly compete with each other?

  By differentiating products
• Order the market structures by the number of firms from fewest to most:

  1️⃣ Monopoly

  2️⃣ Oligopoly

  3️⃣ Perfect Competition
• What is a common strategy used by airlines in an oligopoly?

  Price wars
• What is a major barrier to entry in the airline industry?

  High capital costs
• How does oligopoly differ from perfect competition in terms of firm numbers and barriers to entry?

  Fewer firms, higher barriers
• In an oligopoly, firms are interdependent and aware of each other's actions.
• Firms in an oligopoly are highly aware of each other's actions.

  True
• What is a key characteristic of an oligopoly market?

  Dominance by few large firms
• High costs and regulations are examples of barriers to entry
• Examples of oligopoly industries include airlines, mobile networks, and supermarkets
• High capital requirements are a major barrier to entry in oligopolies.

  True
• Match the market structure with its barriers to entry:

  Monopoly ↔️ Very high

  Oligopoly ↔️ High

  Perfect Competition ↔️ Low
• What do oligopolistic firms consider when making pricing decisions?

  Rivals' likely responses
• What is an oligopoly?

  A market structure with few large firms
• In an oligopoly, firms are highly aware of each other's actions and decisions
• How do firms in an oligopoly gain a competitive edge?

  Product differentiation
• Perfect competition has moderate barriers to entry.

  False
• An oligopoly is a market structure dominated by a small number of large firms
• In an oligopoly, each firm's decisions affect others.


  True
• Firms in oligopoly industries exhibit significant interdependence
• How do existing large firms leverage economies of scale in an oligopoly?

  To undercut new entrants
• What type of interaction do firms in an oligopoly consider when making pricing decisions?

  Strategic interaction
• What is the Nash equilibrium in game theory?

  No player can improve payoff unilaterally
• What do price takers produce where price equals?

  Marginal cost
• What is game theory the study of?

  Strategic decision-making
• Firms in an oligopoly use game theory to analyze the impact of their pricing and output decisions on competitors.


  True
• Match the game theory scenario with its description:

  Price War ↔️ Firms repeatedly undercut each other's prices

  Collusion ↔️ Firms coordinate to keep prices high
• Collusion in an oligopoly occurs when firms coordinate to maintain high prices.
• What are the two main strategic behaviors firms in an oligopoly can engage in?

  Competition and collusion
• Match the strategic behavior with its outcome:

  Competition ↔️ Lower prices, lower profits

  Collusion ↔️ Higher prices, higher profits
• Collusion is more likely when there are few firms, high barriers to entry, and effective monitoring mechanisms.


  True
• What is one drawback for consumers in an oligopoly due to reduced competition?

  Higher prices
• What is an oligopoly?

  A market with few firms
• Firms in an oligopoly are highly aware of each other's actions and decisions.


  True
• Match the market structure with its characteristics:

  Monopoly ↔️ 1 firm, very high barriers

  Oligopoly ↔️ Few firms, high barriers

  Perfect Competition ↔️ Many firms, low barriers
• An oligopoly sits between monopoly and perfect competition in terms of firm numbers and barriers to entry.


  True
• Firms in an oligopoly are highly aware of each other's actions and decisions.