Oligopoly characteristics
- Created by: Jade
- Created on: 17-11-12 13:15
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- Oligopoly
- A market structure dominated by a few large firms
- Characteristics of an oligopoly
- High barriers to entry leading to long run abnormal profits
- Mutual interdependence between competing firms
- Price rigidity due to risks and uncertainties associated with price competition
- Intensive non-price competition
- Periodic aggressive price wars - fights for market share/dominance
- Profit maximization may NOT be the firm's objective
- Game theory
- Seeks to analyze strategic behaviour between firms
- E.g. enter a price war or keep prices constant
- Collusion
- Where firms tacitly or otherwise agree not to compete on prices, service provision and other matters that might adversely affect mutual well-being
- Tacit collusion: unwritten agreement not to engage in price war
- NOT ILLEGAL
- E.g price or output agreement designed to restrict competition
- Cartel - group set up by rival firms to take common action
- E.g. agree prices, market share etc
- ILLEGAL in most countries including the UK
- Price fixing
- OFT fined BA £270m for fuel surcharge price fixing
- ILLEGAL
- E.g price leadership - where one firm, usually the market leader, increases price and the others follow
- Informal collusion, no official agreement
- E.g price leadership - where one firm, usually the market leader, increases price and the others follow
- Informal collusion, no official agreement
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