Oligopolies

• An oligopoly is a market with a small number of large firms
• Interdependence is where the actions of one firm affects other firms
• The market Structure of and oligopoly is:

  1. High barriers to entry
  2. supply in the industry is concentrated in the hands of relatively few firms
  3. firms are interdependent
• Price rigidity is when price trends don’t change
• Collusion is when firms work together
• A cartel is a collusion agreement amongst a group of oligopoly firms to fix prices and/or output
• Tacit collusion is where collusive relationships form without any formal agreement
• Price leadership is when one firm has a dominant position and firms with lower market position follow price changes of the leader
• Price wars is when two or more rival companies lower prices with the goal of stealing the market share
• Game theory can be used by economists to predict how firms will react in a number of given scenario. It is used mainly when dealing with oligopolies to explain why firms may collude or why they may decide to abandon any agreement to collude
• A double edged sword means favorable and unfavorable consequences