1.2.21 Oligopolies

Cards (25)

  • What is an oligopoly?

    When a market is dominated by a few firms
  • What are the features of a Oligopoly?(7)
    Few firms
    Large firms dominate
    different products
    Barriers to entry
    Collusion
    Non-price Competition
    Price Competition
  • WHat is the range of firms in an monopoly
    3-7
  • How can large firms dominating an oligopoly market affect the price?
    these firms could control a large percentage of the market, and are highly influential in determining the prices
  • How can different products in an oligopoly market affect the difference in products? (Different products)
    Products would be close substitutes with some differentiation
  • Why do oligopoly markets have high barriers to entry?(2)
    Set-up costs are high, and dominant firms likely discourage entry by investing in their brands
    The rest is the same as monopolies (legal barriers, patents, marketing, budgets, tech)
  • What is collusion?
    When dominant firms set up agreements to restrain competition
  • What are examples of the agreements that the firms that do collusion? (3)
    Firms could share a market geographically
    price fixing, all firms agree to charge same (high) prices
    Firms agree to restrict output
  • What is Non-price Competition in oligopoly markets?
    When firms compete using promotion and advertising
  • What are the most common ways that firms do Non-Price Competition?
    Branding
    Brand loyalty
    Product differentiation
  • How is Branding used for Non-Price Competition?
    Products are given a name, term, sign or symbol so customers can identify them more easily
  • How could firms create brand loyalty?
    Through advertising
  • How is product differentiation used to persuade customers?
    firms try to persuade consumers to persuade customers that their brands are different from those of competitors (real or perceived differences)
  • How is price competition in a oligopoly market?
    The market leader sets the price and the others follow
  • Firms try to avoid/force price wars
    avoid
  • What are the advantages of Oligopolies?(5)
    Choice
    Quality
    Economies of scale
    Innovation
    (Threat of) Price Wars
  • How is choice an advantage of an oligopoly for customers?(3)
    It ensures that a customer is provided with a choice
    Firms can launch new brands to provide more choice
    In some markets, little choice exists due to the difficulty in differentiating product
  • How is Quality an advantage of an Oligopoly?

    Because non-price competition leads to product differentiation, and some might be superior by customers
  • How is EoS an advantage of an Oligopoly?
    Dominant firms are usually large and can take advantage of EoS
  • How is innovation an advantage of an Oligopoly?
    Large dominant firms -> resources for R&D -> new products to beat out competitors
  • How is the threat of price wars an advantage of an Oligopoly?
    Prices tend to be stable, which provides the consumers with certainty about the market
  • What are the disadvantages of Oligopolies? (2)
    Collusion
    Cartel
  • How is collusion a disadvantage of an Oligopoly? (2)

    Price fixing: firms agree to a higher-than-market price
    Market is shared geographically, consumers in one area have limited choice
  • What is a cartel?
    Where a group of firms or countries join together and agree on pricing or output levels in the market
  • What are the disadvantages for consumers? (2)

    Firms could choose to invest in advertisement instead of spending on R&D
    Price wars can reduce competition and increase prices in the long term