| What are Concentrated Markets? | -Industries where only a Few Firms dominate. There can be Many Firms operating, but only a Few are Giant and sustain Monopoly Power |
| What is a Concentration Ratio? | -Say that 3 Firms have got Revenues of £100, £80 and £70, and the Market is £500
-You would do the 3 Revenues Firm, Divide by the Market Value and then x100 for a %
-Here it is:
(£100+£80+£70)/(£500) x 100 = 50%
-The 3 Firm Concentration Ratio is 50% |
| How can you Define an Oligopoly? | -Oligopoly is a Market that the Few Dominate (Small Number of Firms have Big Concentration Ratio)
-High Barriers to Entry (Supernormal Profits hard to Compete away)
-Firms have Differentiated Products (Not the same, but Similar)
OR/AND
-Firms are Interdependent - Actions of a Firm will effect others
-Firms use Competitive or Collusive Strats to make Interdependence work on their Terms |
| What, in a Oligopolistic Market, is Competitive Behaviour?
-When is it most Likely to happen? | -This can be a Long Term Strat where the Firm does not Cooperate but Compete - especially on Price
-Can be more Likely if One Firm has Lower Costs than all the other Firms
-Or if there are quite a few Big Firms making it hard to Cooperate
-Or if the Products made are Similar
-Or if the Barrier to Entry is quite Low |
| What, in an Oligopolistic Market, is Collusive Behaviour?
-When is most likely to happen? | -This is when Firms Cooperate - especially on Price
-Formal Collusion is an Agreement between Firms - a Cartel. Usually Illegal
-Informal Collusion is Tacit - No agreement is made. Firms just know not to Compete and its in their Best Interests
-Firms can still be Price Leaders, but this sets up a Pattern ie other Firms will do the Same.
-Most likely when Firms have similar Costs
-Or when there are a Few Big Firms - easier to Check up on
-Or when there is a Sense of Brand Loyalty in place
-Or when Barriers to Entry are HIgh. |
| Why can Collusive Behaviour in an Oligopolistic Market lead to Results similar to Monopolies? | -Collusive Oligopolies can create High Prices and Low Output (Underconsumption) and Allocative and Productive Inefficiency. They have the Resources to invest, Increasing Dynamic Efficiency, but there is not an Incentive. Thus, Market Failure is here
-Because the Firms do not Lower Prices, they make Supernormal profits
-How it works is that the Industry will agree to Max Profits so will Produce to the Point where MC=MR. Each Firm part of the Collusion has a Quota to Reach. Usually, Supernormal Profit is made. |
| Firm that are in a Collusive Pact can still Compete in what other ways? | -Differentiating their Products is one way, via Improvements or making a Strong Brand
-Sales Promotion ie Loyalty Rewards for Consumers who stick with the Firm
-Find new Exporting Markets. |
| Why will Collusive Oligopolistic Markets use Predatory Pricing | -Firm that tries to break into the Industry that is controlled by the Cartel can face such Fierce Price Drops that it can force them out - dropping Competition and the threat of the Cartel Collapsing. |
| What arguments can be made to Support Oligopolies?
-What happens to Collusion? | -Firms will compete in Non-Price Factors such as Quality, Accessibility and Efficient. Dynamic Efficiency can be Presented
-Firms will not raise Very High Prices as this ignites Competition and Consumers may not Buy
-Competitive Oligopolies can achieve Huge Efficiency.
-Formal Collusion is usually Illegal, Informal Collusion is usually Temporary. One Firm can Cheat and Lower its Prices for an Advantage (First-Mover Advantage) and subsequently triggers a Price War
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