oligopoly - kinked demand curve

what are the characteristics of oligopolies

few firms dominate the market (high concentration ratio)

differentiated goods (firms are price makers)

high barriers to entry/exit

interdependence (price rigidity)

non price competition

profit max not sale objective

what are some barriers to entry

start up costs

economies of scale

sunk costs

brand loyalty

what does interdependence mean

firms don’t make decisions on their own, they make decisions based on actions of other firms

what two things about price should you remember for firms in oligopolies

firms don’t want to change price

firms don’t need to change price

kinked demand curve

why does it not benefit firms in oligopolies to raise prices

all other firms in the market will keep their prices the same and therefore the firm that raised their prices will lose demand, market share and revenue

why does it not benefit firms in oligopolies to decrease prices

quantity demanded will only increase by a little bit as all other firms in the market will also decrease prices, and therefore get into a price war and will lead to a decrease in total revenue

what kind of non-price competition may occur in oligopolies

branding

advertising

quality

why is there a temptation to collude in oligopolies

to break interdependence and not have to worry about how rivals react, and it gives you the power to act like a monopoly