Oligopoly and Concentrated Markets

Rough mindmap of topics surrounding the oligopoly structure

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  • Oligopoly and concentrated markets
    • market structure with small number of dominant firms
    • Concentration ratios measure  market share of biggest firms in the market
    • Best defined by behavior not structure
      • Market conduct of one firm affects that of the other
        • Each firm needs to anticipate and consider reactions of other firms before making decisions e.g. about price
    • Competitive Oligopoly
      • INTER DEPENDENT because must consider rivals' reactions
        • INDEPENDENT because can make own decisions i.e. don't collude
        • KINKED DEMAND CURVE THEORY
          • Firms lack accurate info so prices are sticky because cause more/less than proportional changes. Expectations not always met.
            • ASSUMING THEY DO NOT COLLUDE
            • Criticism is that no explanation of how price is initially set. Only applies when cyclical changes in D, not for unstable or large changes.
    • Aspects of pricing
      • COST-PLUS: P = AFC + AVC + profit margin
      • Price parallelism: same P
        • From collusion or competition, difficult to say which
      • Price Leadership: one firm leads P
      • Limit Pricing - LR pr max not SR pr max
      • Predatory pricing: deliberately P < C
    • PRICE DISCRIMINATION
      • Charging dif customers dif prices for same service.
        • Can do so based on each consumer's personal PED for the g/s
          • E.g. bulk buying or tied sales
            • CONDITIONS NECESSARY
              • Can identify dif sub-segments of market
                • Consumer knowledge differs or choices are influenced by area etc. Varying importance of g/s
              • PED dif
              • Can prevent seepage
          • E.g. dif ticket prices, off-peak/peak
          • P dif for reasons NOT linked to COST

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Aimen Kamran

in progress 

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