oligopoly

define global trade

data used for ratios does not include important competition of foreign supplies. highly competitive global market

what is price leadership?

dominant firm initiates price changes and all firms follow

some oligopolies develop from the growth of what?

dominant firms (cereal, gum, candy bars)

what does the oligopoly demand curve look like?

down sloping- but location and elasticity depends on how firm's rivals react to a price change

what happens between the firms that collude?

firms in industry come to agreement to split market

define collusion

firms in industry reach an agreement to fix prices, divide up the market, or otherwise restrict competition

what is overt collusion?

group of producers with a formal written agreement- set price, control output, divide market

how does demand affect collusion?

if 1 firm has lower demand curve than others. so then they have higher costs to produce efficiently & in higher price range

how does cheating affect collusion?

if ones cheats and whole credibility goes away

definitions of industries arbitrary

may be between competition between 2 products in different industries * ex. aluminum competes with copper in many applications

are oligopolies price makers or price takers?

price makers. but must consider rivals reactions to change in price, output, product characteristics, and advertising

define localized market shortcomings of concentration ratios

ratios are for the entire nation. some markets for products are localized. for example concrete producers are very localized because you're not going to want a place from California to have to bring concrete

definition of concentration ratio

shows % of total output produced & sold by an industry's largest firms

how many firms are in an oligopoly?

somewhat vague- usually 3-5

what is covert collusion?

tactic understandings- Gentleman's Agreements

how does number of firms affect collusion?

the more firms you have it is harder for everyone to be on the same page.

what is the interpretation of common ratio

when largest 4 firms control 40% or more of market

what are the 2 types of goods oligopolies produce?

* industrial products: steel, zinc, copper- standardized * consumer goods industries- autos, electronics, cereals- differentiated

what are obstacles to collusion?

1) demand and cost differences 2) number of firms 3) cheating 4) recession 5) potential energy 6) logal obstacles

what are the 4 barriers to entry of an oligopoly? (many of same barriers that create/ sustain monopolies)

1) economies of scale & high capital (equipment) requirements 2) ownership of raw materials 3) patents 4) preemptive pricing/ advertising strategies

what are the characteristics of an oligopoly?

1) few large firms 2) homogeneous or differentiated 3) control over price but mutual interdependence 4) entry barriers

what are the 3 shortcomings of concentration ratios?

1) localized markets 2) inter- industry competition 3) global trade

what are the types of joint-profit maximization (collusion)?

1) overt collusion- cartel 2) covert collusion 3) price leadership

definition of mergers

2 or more firms merge to increase market share and achieve greater economies of scale- desire for monopoly power & control

what is the common ration?

4 firm concentration ratio

mutual interdependence

because there is a mutual interdependence between oligopolies they have to have strategic behavior when it comes to advertising.