An oligopoly is a market structure characterized by a small number of firms, differentiated or standardized products, and significant barriers to entry
Few dominant firms control most of the market share in an oligopoly.
What are examples of barriers to entry in oligopoly markets?
High capital costs, patents
In an oligopoly, firms have considerable influence over prices and output
What are the causes of oligopoly?
1️⃣ Economies of Scale
2️⃣ High Capital Investment
3️⃣ Proprietary Technology
4️⃣ Government Policies
Economies of scale can create barriers to entry in oligopolies.
Why does high capital investment act as a barrier to entry?
Prevents new firms
Control over proprietary technology provides a competitive advantage, hindering market entry
High barriers to entry prevent new firms from entering an oligopoly market.
Which industry is an example of an oligopoly?
Airline industry
Firms in an oligopoly can influence prices and outputs due to market dominance.
What are the two types of competition in oligopoly markets?
Collusive and non-collusive
Collusion involves firms working together to restrict output and raise prices
Non-collusive competition often leads to price wars or product differentiation.
What is an example of collusion in the real world?
OPEC coordinating oil production
Match the Game Theory concept with its description:
Players ↔️ Entities making decisions
Strategies ↔️ Possible actions or choices
Payoffs ↔️ Outcomes or rewards
What is the Nash Equilibrium in Game Theory?
Stable state no player benefits
In the Prisoner's Dilemma, maximizing individual profit leads to a suboptimal outcome for both firms.
In the Prisoner's Dilemma, both firms end up with lower profits than if they had both priced high
In Game Theory, players are entities making decisions
What are strategies in Game Theory?
Possible actions or choices
Payoffs in Game Theory represent the outcomes or rewards each player receives.
What is the payoff if both firms A and B price high in the given payoff matrix?
3
If one firm prices high and the other low, the profits are 1 and 4
Order the key concepts in Game Theory from most fundamental to applied.
1️⃣ Players
2️⃣ Strategies
3️⃣ Payoffs
What characterizes an oligopoly in terms of the number of firms?
Few dominant firms
High barriers to entry prevent new competitors from entering an oligopoly market.
The airline industry is an example of a market structure called an oligopoly
What is a key characteristic of an oligopoly market in terms of product type?
Differentiated or standardized
Firms in an oligopoly have substantial influence over prices and output.
Name one factor that causes oligopolies to arise.
Economies of scale
In an oligopoly, firms strategically plan their actions due to interdependence and may engage in collusive or non-collusive competition
Collusion in an oligopoly involves firms working together to restrict output and raise prices.
What is an example of non-collusive competition in an oligopoly?
Price wars
In Game Theory, the Nash Equilibrium is a stable state where no player benefits from changing their strategy
How does Game Theory help analyze oligopolies?
Strategic decision-making
The Nash Equilibrium in an oligopoly ensures that firms maximize their profits collectively.
False
What is a Nash Equilibrium in an oligopoly?
Stable state of strategies
High barriers to entry in oligopolies include high capital costs, patents, or regulatory requirements