chapter 14
Suppose that a particular industry has a four-firm concentration ratio of 85 and a Herfindahl index of 3,000. Most likely, this industry would achieve
neither productive efficiency nor allocative efficiency.
a few firms producing either a differentiated or a homogeneous product.
oligopoly
The conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because
over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive.
degrees of competition (lowest to highest) is oligopoly properly placed?
pure monopoly, oligopoly, monopolistic competition, pure competition
Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its
demand curve as kinked, being steeper below the going price than above.
The mutual interdependence that characterizes oligopoly arises because
each firm in an oligopoly depends on its own pricing strategy and that of its rivals.
The study of how people (or firms) behave in strategic situations is called
game theory.
In the United States cartels are
in violation of the antitrust laws.
Advertising can enhance economic efficiency when it
increases consumer awareness of substitute products.
Advertising can impede economic efficiency when it
increases entry barriers.
Cartels are difficult to maintain in the long run because
individual members may find it profitable to cheat on agreements.
As a general rule, oligopoly exists when the four-firm concentration ratio
is 40 percent or more.
If there are significant economies of scale in an industry, then
a firm that is large may be able to produce at a lower unit cost than can a small firm.
A breakdown in price leadership leading to successive rounds of price cuts is known as
a price war.
Game theory can be used to demonstrate that oligopolists
can increase their profits through collusion.
The likelihood of a cartel being successful is greater when
cost and demand curves of various participants are very similar.
The kinked-demand curve model of oligopoly is useful in explaining
why oligopolistic prices might change infrequently.
