2. Understand oligopolist behaviour given interdependence
3. Conclude competitive oligopoly or collusive oligopoly
4. Evaluate competitive oligopoly
5. Evaluate collusive oligopoly
Competitive oligopoly
Oligopolists engage in price wars or compete on non-price factors like branding, advertising, quality, standards
Collusive oligopoly
Overt collusion - firms fix prices or quantities in formal agreements<|>Tacit collusion - informal agreements not to engage in price wars or price leadership by a dominant firm
Factors promoting competitive oligopoly
Many firms (not concentrated)
New market entry possible
One firm has significant cost advantage
Homogeneous goods
Saturated market with price wars
Factors promoting collusive oligopoly
Few firms
Similar costs
High entry barriers
Ineffective competition policy
Consumer loyalty
Consumer inertia
Evaluating competitive oligopoly
Evaluate as competitive market - static efficiency benefits, but loss of dynamic efficiency and economies of scale
Evaluating collusive oligopoly
Evaluate as monopoly - static inefficiency, but potential dynamic efficiency and economies of scale benefits
Tacit or overt collusion means firms behave like a monopoly
