Chapter 5 - Oligopoly

Collusion
1. Formal - Cartel, e.g. OPEC
2. Informal - Price leader leads
  1. Tacit - follow the norm
  2. Barometric - most sensitive
  3. Parallel - all change with each other
  4. Price leader
Barriers to entry
1. Predatory pricing
2. Advertising(sunk cost)
3. Brand loyalty
4. Multiplicity of brands
5. Integration
6. Research and development
Pricing techniques
1. Cost plus pricing - LRAC +25%
2. Transfer pricing - sell goods to subsidiary for low profit in high tax country, sell for max profit in low tax.
Competitive oligopoly
1. Price stability
  1. Kinked demand curve
    1. Discontinous region
    2. Does not take non price competition into account
    3. Inelastic and elastic demand curves
  2. Game theory - reaction of competitors, payoff matrix
2. Non price competition
  1. Quality of good
  2. Customer experience
  3. Range of goods
  4. Times open
  5. Discount cards
3. Zero sum game - market share is displaced in the market, one firms loss=anothers gain
Real life examples: Energy industry 6:98 Supermarkets 5:75
Either collusive or competitive
1. Prisoners dilemma - payoff matrix
  1. BA and virgin airlines
EVALUATION
1. collusive(market failure)
  1. higher prices
  2. lower output
  3. allocative inneficiency
2. competitive
  1. worse price stability but more efficient
interdependence
1. kinked demand
2. cartel

Resource summary

	Created by usman ahmed over 10 years ago