Oligopoly - Kinked Demand Curve

Created by

Toby Landes (GRK7)

Cards (24)

Oligopoly
Few firms dominate the market
High concentration ratio (no more than 7 firms with 70% market share)
Firms have differentiated/unique goods
High barriers to entry and exit
Interdependence - firms make decisions based on actions/reactions of rivals
Price rigidity
Non-price competition (branding, advertising, quality)
Profit maximization may not be the sole objective
Oligopoly examples 
Global soft drink industry (Coca-Cola, Pepsi)
Global car industry
OPEC (Petroleum Exporting Countries)
UK supermarket industry
UK energy industry
UK supermarket fuel providers
UK bus market
UK airline market
Using the Kinked Demand Curve model to understand oligopoly 
1. Differing price elasticities of demand above and below the current market price (p1)
2. Firms don't want to raise price (lose market share as rivals won't follow)
3. Firms don't want to lower price (price war, total revenue decreases)
4. Vertical gap in the Marginal Revenue curve - as long as costs change within this gap, firms can maintain price at p1 while profit maximizing
What does the term "oligos" mean in Greek? 
"Oligos" means "few" in Greek.
What is the definition of an oligopoly? 
An oligopoly is a market structure characterized by a small number of large firms that dominate the industry.
Why is interdependence a characteristic of oligopolies? 
Firms' decisions significantly affect each other in an oligopoly.
What does it mean when we say there are high barriers to entry in an oligopoly? 
It means that it is difficult for new firms to enter the market.
What types of products can oligopolistic firms produce?
Oligopolistic firms can produce homogeneous or differentiated products.
What is non-price competition in the context of oligopolies? 
Non-price competition refers to firms competing on factors other than price, such as quality or marketing.
What is the potential for collusion in oligopolies? 
Firms in an oligopoly might cooperate to maximize joint profits.
What is a pure oligopoly? 
A pure oligopoly is when firms produce identical or homogeneous products.
What is a differentiated oligopoly? 
A differentiated oligopoly is when firms produce slightly different products.
What is a collusive oligopoly? 
A collusive oligopoly is when firms cooperate to maximize joint profits.
What is a non-collusive oligopoly? 
A non-collusive oligopoly is when firms compete independently.
What is price leadership in an oligopoly? 
Price leadership is when one firm sets prices and others follow.
What is the kinked demand curve in oligopoly behavior? 
The kinked demand curve explains why oligopolists resist changing prices due to the risk of price wars.
What is an example of a cartel in an oligopoly? 
OPEC is an example of a cartel where firms agree to limit production to maintain high prices.
What is non-price competition in oligopolistic markets? 
Non-price competition involves competing on advertising, quality, or service rather than lowering prices.
What are some real-world examples of oligopolies? 
Examples include telecommunications, soft drinks, commercial aircraft manufacturing, video game consoles, social media platforms, and supermarkets.
Which industry in the UK is an example of an oligopoly? 
The supermarket industry in the UK, dominated by Tesco, Sainsbury's, Asda, and Morrisons, is an example of an oligopoly.
Why is the supermarket industry in the UK considered an oligopoly? 
It is considered an oligopoly because a few large chains dominate the market.
What is a characteristic of oligopolies regarding market concentration? 
Oligopolies have high market concentration, meaning a few firms control a large portion of the market share.
Which market is an example of an oligopoly? 
The smartphone market, dominated by firms like Apple, Samsung, and Huawei, is an example of an oligopoly.
What are the key points that define an oligopoly? 
Few large firms control a significant market share, high barriers to entry for new competitors, and firms are interdependent.