Oligopoly

what is oligopoly?

when the market is dominated by a few large firms (like honda, toyota, ford)

what are the features? (part 1/5)

• few firms

• large firms dominate

• different products ; usually close substitutes, but some difference

what are the barriers to entry? (2/5)

• markets likely to benefit

• high set up cost

• high profit enjoyed by firms brings in new entrants!

whats price competition and its points? (3/5)

• market leader sets the price n’ others follow to prevent price war

• if one cuts the price, others need to follow otherwise theyll lose sales

• price war lasts for some time

• firms have interdependence

• if one firm cuts the price others need to make changes (matching prices, investing)

whats collusion and the points? (4/5)

collusion: informal agreements between firms to restrict competition

• its illegal and exploits consumers

• firms might agree to share the market GEOGRAPHICALLY (no competition)

• price fixing (they agree on charging higher prices)

• supply output is low and the price goes up

what are the NON-price competition points? (5/5)

• when competitors use ads, coupons, loyalty cards to prevent price wars

• to identify a brand, they use a specific symbol or smt

• product differentiation

  • real difference: design, material, skill

  • imaginary: advertising, branding

interdependence meaning?

actions of one country or large firm having a direct affect on others

price war meaning?

when one firm in industry changes the price and others have to follow

adv of oligopoly?

advantages:

• choice: (new brands, products, niche market)

• quality: ads and promotion tricks consumer to thinking itll be better

• EOS: exploits for lower price

• innovation

• price war: keeps prices stable, helps consumer w/ uncertainty & they benefit from it

disadv of oligopoly?

• consumer cant benefit if theres no competition

• if the firm restricts comp (price fixing), consumers will pay higher

• consumer suffers is market shared geographically

• lack of choice

• cartel → if successful = monopoly (illegal in EU and US)

• genuine comp → customer benefits but collusion makes it worse

market niche meaning?

expensive service that only a few people can buy but still gives the company profit

cartel meaning?

when a group of firms join together and agree on pricing or output level in the market