5.5 Oligopoly

Advantages of oligopoly

Economies of Scale

Dynamic efficiency

Product differentiation

Price Stability

Disadvantages of oligopoly

Reduced competition

Collusion risk

Barriers to entry

Potential for inefficiency

What is the significance of interdependence in oligopoly?

Firms must consider rival's potential reaction when making decisions

Difference between cooperation and collusion

Cooperation is legal collaboration between firms 

Collusion is secretive, often illegal coordination between firms to reduce competition, such as fixing prices of limiting output

Differentiate between collusive and non-collusive oligopoly

Collusive oligopoly involves firms cooperating on prices/output

Non-Collusive oligopoly involves independent decision-making

What are the characteristics of oligopolistic competition

Few firms, slight product differentiation, significant barriers to entry/exit

What is concentration ratio

A measure of the market share of the largest 4 firms in an industry

Why is non-price competition significant in oligopolies

Firms compete through advertising, branding, and product features to avoid price wars

What does the kinked demand curve model illustrate?

Price rigidity due to firm's interdependence in an oligopoly