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characteristics: high barriers to entry + exit
High barriers t entry including high capital requirements, EoS, patents + gov regulations.
characteristics: high cr
A small no. of large firms dominating the market. The CR measures the market share held by the largest firms in the industry + this ratio is typically high.
characteristics: interdependence of firms
Oligopolistic firms are highly aware of the actions + decisions of their competitors. They must consider how their own choices, such as pricing + marketing strategies, will affect the behaviour + reactions of rival firms.
characteristics: product differentiation
Product differentiation to distinguish their offerings from competitors including branding, quality variations + advertising to create brand loyalty.
calc of n-Firm crs and their significance
The n-firm CR measures the combined market share of the largest n firms in an industry, calculated by summing the market shares of these firms. Significance:
Higher CRs indicate a more concentrated industry with fewer dominant firms.
Lower CRs suggest a more competitive industry with a greater no. of smaller firms.
It can provide insights into the degree of market power held by the largest firms + potential antitrust concerns.
collusive behaviour
Firms in an oligopoly may collude to set high prices + limit comp, increasing their profits collectively.
Collusion can provide market stability, reducing uncertainty for firms + consumers.
Collusion helps firms avoid destructive price wars.
non-collusive behaviour
Firms may choose to compete aggressively to gain market share + increase profits individually.
Antitrust laws + regulations prohibit collusion causing legal constraints, encourage firms to compete independently.
Firms may have differing goals and incentives that make collusion difficult.
overt collusion
Occurs when firms openly agree to cooperate + set prices/output lvls. This can lead to the formation of cartels, which r explicit agreements among firms to coordinate their actions.
tactic collusion
Involves firms behaving in a manner that resembles collusion w/o any explicit agreement. Firms may follow observed pricing patterns set by competitors/engage in price leadership, where 1 dominant firm sets the price + others follow suit
prisonner’s dilemma in a 2 firm model
A classic game theory scenario where 2 rational players, in this case, 2 firms, make decisions that result in suboptimal outcomes. In an oligopolistic context, if both firms choose to compete aggressively, they may trigger a price war + both suffer lower profits. However, if both firms collude + set high prices, they both earn higher profits. The dilemma arises bc each firm has an incentive to betray the collusion agreement to gain a larger share of the profits, but if both firms do this, they both end up worse off.
types of price comp
Price wars are fierce competition where firms continuously lower prices to gain market share, often resulting in reduced profits for all.
Predatory pricing occurs when a firm sets very low prices with the intent of driving competitors out of the market, after which it can raise prices.
Limit pricing is a strategy where a dominant firm sets prices low enough to discourage new entrants from the market.
types of non-price comp
Product differentiation so firms can emphasise the unique qualities + features of their products thru branding, quality, design, or advertising.
Firms engage in extensive advertising + marketing campaigns to create brand loyalty + awareness.
Innovation in competing through the development of new products, technologies, or processes.
Offering exceptional customer service + support as a competitive advantage.
Establishing efficient distribution networks to reach customers faster + more conveniently.
