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Flashcards in Oligopoly Deck (15)
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1

oligopoly

market where a few sellers dominate the industry

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

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

3

What are the strategies used by monopolies to reap profit?

  • collusion
  • competition

4

collusive oligopolies

firms that actively co-operate to fix prices

5

collusion

agreement between competitive parties to limit competition and raise prices

6

cartel

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

7

How can firms collude?

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

8

What are the graphs for a collusive oligopoly? Explain.

like monopoly because it acts as one industry

9

Examples of a collusive oligopoly

OPEC

10

tacit collusion

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

11

What are the barriers to collusive oligopolies?

price fixing illegal in many parts of the world

12

non-collusive oligopoly

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

13

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

14

Disadvantages of oligopoly

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

15

advantages of oligopoly

earn economic profit so can conduct research/development

may yield economies of scale - lower price for consumers