ECO-102; Ch:14 Oligopoly Study Guide

What assumptions about a rival's response to price changes underlie the kinked-demand curve for oligopolists? Why is there a gap in the oligopolist's marginal-revenue curve?

-non-collusive oligopoly -match price change; (-) in price -ignore price change; (+) in price -combined strategy -price inflexibility

Speculate as to why price leadership is legal in the United States, whereas price-fixing is not.

allows oligopolists to coordinate their power regarding. No formal agreements or clandestine meetings are involved, The practice has evolved whereby one firm usually the largest, changes the price first and, then, the other firms follow.

Define cartel, overt Collusion & covert collusion. What are the main obstacles to collusion?

cartel- formal written agreements-set price and output -illegal in the U.S covert collusion- unwritten informal understanding, verbal or tacit understanding. Violation of antitrust laws overt collusion-open to fix agreements to fix prices, output and restrict competition advantage: (+) profits, (-) uncertainty, percentage of the entry of rival firms

List five or six oligopolists whose products you own or regularly purchase.

cereals, laundry detergent, a car, steel, clothes, soda: coke etc.

Why might price collusion occur in oligopolistic industries? Assess the economic desirability of collusive pricing.

differently, demand and cost conditions among firms in the industry. A large number of firms in the industry, the incentive to cheat, recession and declining demand (+) ATC. The attraction of potential entry of new firms if prices is too high. Antitrust laws that prohibit collusion.

What distinguishes oligopoly from monopolistic competition?

the oligopoly model blends a large amount of monopoly power with both considerable rivalry among existing firms and the threat of increased future competition. M.C mixes a small amount of monopoly power with a large amount of competition.

Why is there so much advertising in monopolistic competition and oligopoly? How does such advertising help consumers and promote efficiency?Summary of the Characteristics of the Four Basic Market Models:

-product development and advertising companies are more difficult to combat and match than lower prices. -oligopolists have substantial financial resources with to support advertising and product development.

Define Oligopoly. Why do oligopolies exist?

Oligopoly exists where a few large firms producing a homogeneous or differentiated product dominate a market. 1. There are few enough firms in the industry that firms are mutually interdependent—each must consider its rivals' reactions in response to its decisions about prices, output, and advertising. 2. Some oligopolistic industries produce standardized products (steel, zinc, copper, cement), whereas others produce differentiated products (automobiles, detergents, greeting cards).