Oligopoly

Question 1

oligopoly

Answer 1

market where a few sellers dominate the industry

Question 2

Oligopoly assumptions:

1. Number of firms
2. Price control
3. Barriers to entry and exit
4. Product
5. Dependence
6. Short-run economic profit
7. Long-run economic profit

Answer 2

1. Few
2. Much
3. Many (scale economies)
4. Differentiated or homogenous
5. Interdependent
6. Possible
7. Possible

Question 3

What are the strategies used by monopolies to reap profit?

Answer 3

• collusion
• competition

Question 4

collusive oligopolies

Answer 4

firms that actively co-operate to fix prices

Question 5

collusion

Answer 5

agreement between competitive parties to limit competition and raise prices

Question 6

cartel

Answer 6

oligopolists agree to take specific market action in a coordinated/sustained effort to enhance profits

Question 7

How can firms collude?

Answer 7

• restrict output to drive up prices
• fix prices to specified range
• restrict innovation to avoid extra costs of research/development
• no advertising or competition

Question 8

What are the graphs for a collusive oligopoly? Explain.

Answer 8

like monopoly because it acts as one industry

Question 9

Examples of a collusive oligopoly

Answer 9

OPEC

Question 10

tacit collusion

Answer 10

single dominant firm establishes price leadership and smaller firms follow with comparable prices

Question 11

What are the barriers to collusive oligopolies?

Answer 11

price fixing illegal in many parts of the world

Question 12

non-collusive oligopoly

Answer 12

firms do not cooperate and instead exist in strategic environment where action and reactions of other firms must be considered

Question 13

Graph showing non-collusive oligopoly’s dilemma. Explain.

Answer 13

Question 14

Disadvantages of oligopoly

Answer 14

• lack of allocative and productive efficiency
• a lot of incentive to coordinate/collude

Question 15

advantages of oligopoly

Answer 15

earn economic profit so can conduct research/development

may yield economies of scale - lower price for consumers