worksheet for oligopoly

· Explain the assumptions of oligopoly.

1. _few companies control__-

a. Concentration ratio-

CRx, if like 4 firms control the 80 percent to 50 percent of the markets its an oligoopoly

b. Herfindahl-Herschmann Index-

is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them.

2. ___either hard or easy barriers to entry____-

because of economies of scale and brand loyalty

3. ____either homogenous or different products______-

alot of branding like coke or same product like opec

4. ____interdependence____-

companies have to take notice other peoples actions like price.

5. ____price rigidity_____-

prices dont change much.

· Distinguish between collusive and non-collusive oligopoly.

· Distinguish between formal collusion and tacit collusion.

· Define a cartel.

1. Define collusive oligopoly –

a collusive oligopoly is when firms collude to charge the same prices for their product, working as a monopoly

2. Define collusion-

working together

3. Illustrate and explain the collusive oligopolist’s graph (whether formally or tacitly colluding).

its a monopoly curve as they function as a monopoly

4. Distinguish between formal and tacit collusion.

a. Formal collusion-

companies formaly and openly agree that they will charge the same price, illigal in most cases

b. Tacit collusion-

when firms charge the same price without formal collusion, just looking a other firms pricing

5. What is a cartel? Are they typically legal or illegal? Give a specific example of a legal cartel.

a cartel is when firms are working together at a set price. ususally illigal but can be legal like OPEC, org. of oil exporting countries.

6. What types of laws guard against anti-competitive behavior like collusion between firms?

antitrust laws which penalize with fines and jail

· Explain the role of game theory in oligopoly.

· Explain and illustrate the kinked demand curve.

7. Define and distinguish the characteristics of a non-collusive oligopoly.

when firms do not work togehter and must be aware of all the other companies decisions.

8. Illustrate and explain the graph faced by the non-collusive oligopolist.

a kinked demand curve

The firm only knows one point on its demand curve

if the firm raises their price alot of demand would be lost

if the firm lowered their price then the other firm would lower theirs too

show price rigifity in a non collusive olygopoly

firms are afraid to raise prices

firms are afraid to lower markets

the shape of the mr curve means that if marginal cost were to rise then it is possible that mc equals mr and so not chang ethier prices or outputs

9. What is game theory? Explain its role in oligopoly.

game theory is the optimal strategy a firm can make in order to gain the best outcome.

10. What is a duopoly?

a. What is a maximin strategy?

maximizing is minimum profit option

b. What is a maximax strategy?

trying to get its highest profit

11. Explain the prisoner’s dilemma. What does the

principle tell us about oligopoly

If Dave pleaded non guilty and henry did so to they would both go to jail but only for 2 years, however dave can be a dick and plead guilty and henry being a nice guy pleads guilty, thinking Dave will so too gets 5 while Dave gets one.

this is relative to economy because instead of guilty it could be advertizing so all the effects remain.

· Explain and give examples of non-price competition.

12. Explain what non-price competition is and why it is important in an oligopoly market structure.

It is factors that make us want to choose the firm over other firms like advertizing. it is important because it is how firms gain customers without price.

13. Describe at least one case study example of firms competing through non-price competition. Give details.

Coca cola compete through heavy ads and sports sponerships agains pepsis advertizing and racing sponsorships.