An oligopoly is a market that is characterized by
WHY DO OLIGOPOLIES EXIST?Many purchases that individuals make at the retail level are produced in markets that are neither perfectly competitive, monopolies, nor monopolistically competitive. Rather, they are oligopolies. Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag. They can either scratch each other to pieces or cuddle up and get comfortable with one another. If oligopolists compete hard, they may end up acting very much like perfect competitors, driving down costs and leading to zero profits for all. If oligopolists collude with each other, they may effectively act like a monopoly and succeed in pushing up prices and earning consistently high levels of profit. Oligopolies are typically characterized by mutual interdependence where various decisions such as output, price, advertising, and so on, depend on the decisions of the other firm(s). Analyzing the choices of oligopolistic firms about pricing and quantity produced involves considering the pros and cons of competition versus collusion at a given point in time. Show A combination of the barriers to entry that create monopolies and the product differentiation that characterizes monopolistic competition can create the setting for an oligopoly. For example, when a government grants a patent for an invention to one firm, it may create a monopoly. When the government grants patents to, for example, three different pharmaceutical companies that each has its own drug for reducing high blood pressure, those three firms may become an oligopoly. Similarly, a natural monopoly will arise when the quantity demanded in a market is only large enough for a single firm to operate at the minimum of the long-run average cost curve. In such a setting, the market has room for only one firm, because no smaller firm can operate at a low enough average cost to compete, and no larger firm could sell what it produced given the quantity demanded in the market. Quantity demanded in the market may also be two or three times the quantity needed to produce at the minimum of the average cost curve—which means that the market would have room for only two or three oligopoly firms (and they need not produce differentiated products). Again, smaller firms would have higher average costs and be unable to compete, while additional large firms would produce such a high quantity that they would not be able to sell it at a profitable price. This combination of economies of scale and market demand creates the barrier to entry, which led to the Boeing-Airbus oligopoly for large passenger aircraft. The product differentiation at the heart of monopolistic competition can also play a role in creating oligopoly. For example, firms may need to reach a certain minimum size before they are able to spend enough on advertising and marketing to create a recognizable brand name. The problem in competing with, say, Coca-Cola or Pepsi is not that producing fizzy drinks is technologically difficult, but rather that creating a brand name and marketing effort to equal Coke or Pepsi is an enormous task. A duopoly is an oligopoly in which several firms duel for consumer demand.
b. False A differentiated oligopoly is a form of market organization where several different large firms produce a homogeneous commodity.
b. False Oligopoly is the prevalent form of market organization in the manufacturing sectors of industrial nations.
b. False A market may be organized as an oligopoly if there are many producers of a product, but transportation costs limit the number that compete directly on a local market.
b. False Oligopolistic markets are characterized by rivalries between firms that arise because the actions of each firm in an industry have an effect on the other firms in the industry.
b. False Limit pricing refers to the oligopolistic practice of charging a price so low that new firms are discouraged from entering the industry.
b. False The sources of oligopoly are generally the same as for monopoly, i.e., barriers to entry.
b. False Concentration ratios measure the total number of firms required to produce the total output of an industry.
b. False The Herfindahl index is equal to the sum of the market shares of all firms in an industry.
b. False If the concentration ratio for an industry is small, then the Herfindahl index is likely to be large.
b. False An oligopolistic industry is likely to have a large concentration ratio and a large Herfindahl index.
b. False The theory of contestable markets holds that an industry without barriers to entry or exit will operate as if it is perfectly competitive.
b. False The Cournot model is defined as a non-oligopolistic model.
b. False Firms described by the Cournot model assume that their rivals will keep their rates of production constant.
b. False Reference to the “Cournot” model is derived by merging “Course” and “not” into a single word and is a response to the question “Is this firm a monopolist?”
b. False The Cournot model focuses on interdependence among firms.
b. False An industry that can be described by the Cournot model will produce total output that is the same as that produced by a perfectly competitive industry, however they will charge a higher price.
b. False The kinked demand curve model describes a monopolistically competitive market.
b. False The kinked demand curve model provides an explanation of price rigidity in the face of changes in costs.
b. False The kinked demand curve model describes a demand curve that is very elastic for price cuts and less elastic for price increases.
b. False The marginal revenue curve associated with the kinked demand curve is vertical at the current market price.
b. False Oligopolists prefer to avoid engaging in nonprice competition.
b. False Collusion is illegal in the United States, but is legal in many other parts of the world.
b. False A cartel is an organization of colluding oligopolists.
b. False Cartels tend to self-destruct because each member has an incentive to cheat.
b. False Price leadership is an example of tacit collusion.
b. False The dominant-firm price leadership model describes a market structure in which a dominant firm is the price maker and all other firms are price takers.
b. False There is no general theory of oligopoly.
b. False The sector in which the size of the largest firms has grown most is banking.
b. False The sales maximization model assumes that firms will always continue to increase output until marginal revenue is equal to zero.
b. False If a firm with marginal cost equal to $2 faces a demand curve defined as QD = 100 - 5P, then revenue is at a maximum when price is $10.
b. False If a firm with marginal cost equal to $2 faces a demand curve defined as QD = 100 - 5P, then profit is at a maximum when price is $10.
b. False The movement towards globalization has been slowed by changes in the telecommunications and transportation industries.
b. False Firms in the entertainment and communications industry have grown and globalized by means of mergers.
b. False A firm’s architecture is defined by the buildings and furnishings that it owns.
b. False Successful firms concentrate on their core competencies and outsource all other activities.
b. False In order to compete successfully in global markets, firms should sacrifice agility for the economies of scale associated with large production facilities.
b. False The steel industry is comprised of virtual corporations.
b. False A virtual corporation is a temporary network of independent companies.
b. False Relationship enterprises are more limited and temporary than virtual corporations.
b. False Porter's strategic framework describes a structure based on five forces.
b. False Porter's strategic framework describes the strategies that firms should follow to maximize profits.
b. False According to Porter's strategic framework, profits will be lower in industries where suppliers have a high degree of bargaining power.
b. False If a firm produces a unique product and inspires a brand loyalty, it will tend to have higher profits.
b. False The creative company relies on six sigma to increase the efficiency of production.
b. False What are the characteristics of an oligopoly market?What are the characteristics of oligopoly in economics? Oligopoly characteristics include high barriers to new entry, price-setting ability, the interdependence of firms, maximized revenues, product differentiation, and non-price competition.
What is oligopoly market?Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors. Some oligopoly markets are competitive, while others are significantly less so, or can at least appear that way.
What is one characteristic of an oligopoly market structure quizlet?One characteristic of an oligopoly market structure is: firms in the industry have some degree of market power. many firms, differentiated products, and free entry.
What is a characteristic of oligopoly in an oligopoly _______?The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately.
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