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iGCSE Economics
1.2.21 Oligopolies
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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