Micro 5.5

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What is an oligopoly?
A form of imperfect competition where a small number of relatively powerful firms compete for market share.
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What is the nature of concentration in an oligopoly?
It is highly concentrated.
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What is the behaviour of firms like in an oligopoly?
Interpendent.
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What makes firms interdependent in an oligopoly?
They take into account the likely actions of other firms in the industry when deciding how to behave.
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What is a concentration ratio?
A measurement of how concentrated a market is, and the total market share held by the largest firms in a market.
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What do concentration ratios indicate?
The total market share held by the largest firms in the industry.
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When does collusion occur?
When firms work together to determine price and/or output.
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What does collusion reduce within firms?
The uncertainty that may exist among firms in the industry regarding pricing and output decisions of rivals.
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What is a cartel?
An example of a collusive arrangement where oligopoly firms agree to fix prices and/or output between themselves.
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What is an advantage to collusive agreements?
It allows inefficient firms to survive.
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What is tacit collusion?
Where firms appear to be organising prices and/or output between themselves without a formal agreement having been made.
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What is overt collusion?
Collusion with a more formal, open agreement.
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What is the kinked demand curve?
An illustration of the interdependence and uncertainty facing firms in this form of imperfect competition, and why oligopolistic markets tend to have stable prices and non-prices methods of competition.
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How are demand curves perceived with a change in price?
Price raise = elastic, price fall = inelastic, because the firm expects rival firms not to follow a price rise but to follow a price cut.
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What happens if a firm raises its prices and competitors do not follow?
It will lose some, but not all, market share.
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What happens if a firm cuts its prices?
Other firms will have no option but to follow, leading to a small expansion of market size but no increase in market share for the individual firm.
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What form of competition do oligopolistic firms tend to prefer?
Non-price competition.
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What are 3 methods of non-price competition?
Product differentiation, customer service, loyalty products.
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Other cards in this set

Card 2

Front

What is the nature of concentration in an oligopoly?

Back

It is highly concentrated.

Card 3

Front

What is the behaviour of firms like in an oligopoly?

Back

Preview of the front of card 3

Card 4

Front

What makes firms interdependent in an oligopoly?

Back

Preview of the front of card 4

Card 5

Front

What is a concentration ratio?

Back

Preview of the front of card 5
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