Oligopoly Essentials

34,106 views

Published on

A2 microeconomics - basics of oligopoly

Published in: Technology, Education
1 Comment
21 Likes
Statistics
Notes
No Downloads
Views
Total views
34,106
On SlideShare
0
From Embeds
0
Number of Embeds
26,332
Actions
Shares
0
Downloads
0
Comments
1
Likes
21
Embeds 0
No embeds

No notes for slide

Oligopoly Essentials

  1. 1. A2 MicroOligopoly (Essentials)Tutor2u, Summer 2013
  2. 2. What is an Oligopoly?High concentration ratio > 60% for top 5firms, branded productsEntry barriers – long run supernormal profitsInter-dependent decisions / uncertaintyThis is the keypoint aboutoligopoly!
  3. 3. What is an Oligopoly?High concentration ratio > 60% for top 5firms, branded productsEntry barriers – long run supernormal profitsInter-dependent decisions / uncertaintyThis is the keypoint aboutoligopoly!
  4. 4. What is an Oligopoly?High concentration ratio > 60% for top 5firms, branded productsEntry barriers – long run supernormal profitsInter-dependent decisions / uncertaintyThis is the keypoint aboutoligopoly!
  5. 5. Strategic Interdependence• One firm’s output and price decisions areinfluenced by its competitors• Because there are few sellers, each oligopolistis likely to be aware of the actions of theothers. Decisions of one firm influence, andare influenced by, the decisions of other firms• This causes oligopolistic industries to be a highrisk for collusion
  6. 6. Business BehaviourPriceWarsPriceMatchingNon-PriceCompetitionCartelsCo-operation
  7. 7. Oligopoly EssentialsOLIGOPOLYPricemakers“Few”number ofdominantsellersLong runsupernormalprofitsStrategicinterdependence
  8. 8. Oligopoly (O), duopoly (D) or a highlycompetitive (C) market – you decide!Household detergentsuppliers in the UKUK High Street BanksPlumbers & decorators inManchesterDOC
  9. 9. Oligopoly (O), duopoly (D) or a highlycompetitive (C) market – you decide!Producers of liquefied gas(worldwide)Aircraft manufacturingRetail pharmacies / chemistsParcel deliveries in LondonODOC
  10. 10. Pharmacies in BristolPharmacies incentralBirmingham
  11. 11. Crucial aspects of oligopolyKeyEvaluation1. Oligopoly is best defined bythe actual behaviour ofbusinesses2. High market concentrationdoes not necessarily meanan absence of competition3. Non-price competition isgiven strong emphasisThere are severaloligopoly models atA2 – a highlycommon area forexaminers to test!
  12. 12. Cost & PriceOutput (Q)The Kinked Demand Curve ModelMR ARMCP1Q1Importance of Non-PriceCompetition in Oligopoly1. Price stickinessobserved in oligopoly2. Price may remain closeto P1
  13. 13. Cost & PriceOutput (Q)The Kinked Demand Curve ModelMR ARMCP1Q1Kinked Demand Curve1. An oligopolist faces a downwardsloping demand curve but theelasticity may depend on thereaction of rivals to changes in priceand output2. (a) rivals will not follow a priceincrease by one firm, so the actingfirm will lose market share -therefore demand will be relativelyelastic and a rise in price3. (b) rivals are more likely to match aprice fall by one firm to avoid a lossof market share. If this happensdemand will be more inelastic and afall in price will also lead to a fall intotal revenueMC2
  14. 14. Cost & PriceOutput (Q)The Kinked Demand Curve ModelMR ARMCP1Q1Importance of Non-PriceCompetition in Oligopoly1. Price stickinessobserved in oligopoly2. Price may remain closeto P13. Even if MC increasesMC2
  15. 15. Non-Price Competition is key to market share and profitabilityInnovation Quality of service Free UpgradesExclusivity
  16. 16. Non-Price Competition is key to market share and profitabilityInnovation Quality of service Free UpgradesExclusivity
  17. 17. Non-Price Competition is key to market share and profitabilityInnovation Quality of service Free UpgradesExclusivity
  18. 18. Non-Price Competition is key to market share and profitabilityInnovation Quality of service Free UpgradesExclusivity
  19. 19. Get help from fellowstudents, teachers andtutor2u on Twitter:@tutor2u_econ

×