Oligopoly

• What are the characteristics of an oligopoly?

  High barriers to entry and exit
• How do high barriers to entry affect competition in an oligopoly?

  They make the market less competitive
• What is a high concentration ratio in an oligopoly?

  Few firms supply the majority of the market
• What does interdependence of firms in an oligopoly mean?

  Actions of one firm affect another's behavior
• How do firms differentiate their products in an oligopoly?

  Using branding
• What are the characteristics of oligopolistic behavior?

  • Interdependence among firms
  • Stable prices
  • Collusion possibilities
  • Non-price competition
• What is the concentration ratio of a market?

  Combined market share of top firms
• What is the 4-firm concentration ratio for the UK supermarkets?

  $72.8\%$
• What is the 2-firm concentration ratio for the UK supermarkets?

  $45.5\%$
• How does a higher concentration ratio affect market competition?

  It makes the market less competitive
• What is collusive behavior in an oligopoly?

  Firms agree to work together
• What are the consequences of collusion for consumers?

  Lower consumer surplus and higher prices
• Why do firms in an oligopoly have an incentive to collude?

  To maximize their own benefits
• What factors make collusion more likely in an oligopoly?

  Few firms, high entry barriers, similar costs
• What is non-collusive behavior in an oligopoly?

  Firms compete against each other
• What is overt collusion?

  Formal agreement between firms
• Why is overt collusion illegal in many countries?

  It reduces competition and harms consumers
• What is tacit collusion?

  Implied agreement without formal agreement
• What is the difference between cooperation and collusion?

  Cooperation is allowed; collusion is not
• What is the kinked demand curve model?

  • Illustrates price stability in oligopoly
  • Assumes asymmetric reactions to price changes
  • Shows interdependence between firms
• What happens if a firm increases its price in an oligopoly?

  It loses significant market share
• What happens if a firm decreases its price in an oligopoly?

  It gains a small increase in market share
• What does the kinked demand curve illustrate about demand elasticity?

  Different demand elasticities at price changes
• What are the reasons for non-price competition in an oligopoly?

  • Increase brand loyalty
  • Improve customer service quality
  • Offer special promotions
  • Enhance advertising and marketing
• What is a cartel?

  A group controlling prices and output
• What is price leadership in an oligopoly?

  One firm changes prices, others follow
• What is a price war?

  Firms constantly cut prices below competitors
• What is the goal of non-price competition?

  To increase brand loyalty and demand
• How can firms use special offers to attract consumers?

  By providing promotions like buy one get one free
• What role does advertising play in non-price competition?

  It influences consumer preferences and brand awareness