Definitions 4. and Oligopoly - Market Structures: Paper 1: OCR A-level Economics Revision and Macroeconomics

High concentration ratio.

In an oligopoly, only a few firms supply the majority of the market. For example, in the UK the supermarket industry is an oligopoly. The high concentration ratio makes the market less competitive.

Interdependence of firms.

Firms are interdependent in an oligopoly. This means that the actions of one firm affect another firm’s behaviour.

High Barriers to entry and exit.

There are high barriers of entry to and exit from an oligopoly. High barriers to entry make the market less competitive.

Product Differentiation

Firms differentiate their products from other firms using branding. The degree of product differentiation can change how far the market is an oligopoly.

Dynamic Efficiency

Efficiency in the long run; concerned with new technology and increases in productivity which causes efficiency to increase over a period of time.

Perfectly Contestable Market

A market with no barriers to entry, where a new firm can easily enter and compete against incumbent firms completely equally.

Perfect Competition

A market with many buyers and sellers selling homogenous goods with perfect information and freedom of entry and exit.

Price Discrimination

When a monopolist charges different groups of consumers different prices for the same good or service.

Tacit Collusion

Collusion where there is no formal agreement, such as price leadership.

Natural Monopoly

Where economies of scale are so large that not even a single producer is able to fully exploit them; it is more efficient for there to be a monopoly than many sellers.

Monopoly

A single seller in the market.

Concentration Ratio

The combined market share of the few top firms in a market.

Overt Collusion

Collusion where firms come to a formal agreement, for example a cartel.

Game Theory

Used to predict the outcome of a decision made by one firm, when it has incomplete information about the other firm.

Contestable Market

When there is the threat of new entrants into the market, forcing firms to be efficient.

Collusion

Occurs when firms agree to work together, for example by setting a price or fixing the quantity they produce.

X-inefficiency

When firms produce at a cost above the AC curve.

Non-price Competition

When firms compete on factors other than price, for example customer service or quality; they aim to increase the loyalty to the brand which makes demand more inelastic.

Non-collusive Oligopoly

When firms in an oligopoly compete against each other, rather than making agreements to reduce competition.

Oligopoly

Where a few firms dominate the market and have the majority of market share, they act interdependently.

Interdependent

The actions of one firm directly affects another firm.

Monopolistic Competition

Where there are a large number of buyers and sellers who are relatively small and act independently, selling non homogeneous goods.