Oligopoly Flashcards

These flashcards cover key concepts regarding oligopolies, including characteristics, examples, and theoretical frameworks.

What characterizes an oligopoly in terms of the number of firms and market share?

An oligopoly consists of only a few firms, where the largest four firms account for more than 40% of the sales.

What are some examples of industries with oligopolistic characteristics?

Examples include warehouse clubs and supercenters (94%), cigarettes (95%), aircraft (96%), and pharmacies and drugstores (69%).

What factors contribute to the existence of oligopolies?

Barriers to entry such as economies of scale, ownership of a key resource, and government-imposed barriers.

In oligopoly, how do firms maximize profits?

Firms maximize profits by setting marginal revenue (MR) equal to marginal cost (MC), with MR depending on their own actions and their rivals' strategies.

What is game theory in the context of oligopoly?

Game theory studies how individuals make decisions where payoffs depend on interactions with others, particularly in competitive and collusive environments.

What is the Nash equilibrium in oligopoly?

The Nash equilibrium occurs when each firm chooses the best strategy given the strategies of all other firms, though it may not be satisfactory for either firm.

What is the best response in the context of oligopoly?

The best response is the strategy that yields the highest payoff for a firm based on the strategies chosen by rival firms.

How does collusion affect payoffs in oligopoly?

Collusion can potentially increase both firms' payoffs, although it is illegal under antitrust laws.

What is the relationship between duopoly output and other market structures?

Duopoly output is higher than monopolistic output but lower than perfectly competitive output.

What happens to price as the number of firms in an oligopoly increases?

As the number of firms in an oligopoly increases, the price approaches the perfectly competitive outcome.