Oligopoly and Strategic Behavior – Flashcards
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The benefits to oligopolists from collusion are:
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- it reduces price uncertainty - it increases profits - it possibly prohibits the entry of new rivals
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When dour or five auto parts stores serve a medium-sized town this can be considered a(n)
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oligopoly
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Oligopolistic firms so which of the following when they change their pricing strategies?
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Affect profits and influence the profits of rival firms.
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Oligopolistic behavior implies that oligopolists prefer competition
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- through product development. - through advertising.
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As a means of conveying information, advertising is a relatively
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low-cost way to get information to consumers.
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When firms in an oligopoly __________, their payoffs will be greater than if they did not.
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collude
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Compared to pure monopolies, oligopolies
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may be less desirable because they are not regulated by government to protect consumers.
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Multiple models are used to study oligopolies because oligopolies
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- encompass a greater range and diversity of market situations. - cannot estimate both their demand and marginal revenue curves due to rivals' reactions.
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A type of implicit understanding used by oligopolists to coordinate prices without engaging in outright collusion is known as
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price leadership
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Compared to the outcome with collusion in the figure provided, if one firm cheats it can increase its payoff by
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3 (15 - 12 = 3)
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Which of the following is true about the oligopolist if rivals match a price cut but ignore a price increase?
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its marginal revenue curve would consist of two degments
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It is reasonable to assume that the demand of a non-colluding oligopolist facing a kinked-demand curve is less ____ or even ____ below the going price.
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elastic; inelastic
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In the graph, the price elasticity of demand is higher ______ above the price of P(0)
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elastic
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Advertising can reduce efficiency by
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- providing misleading information. - manipulating consumer preferences.
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A firm in an oligopolistic market
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can set its price and output to maximize profits.
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Compared to pue competition, oligopolistic industries may result in
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- more technological advances because oligopolies have assurances of rewards caused by barriers to entry. - more technological advances because oligopoly firms earn economic profits to fund research and development.
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An ______ is present when the largest four firms in an industry control more than 40% or more of the market.
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oligopoly
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Advertising may decrease economic efficiency if it
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increases monopoly power.
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Firms in an oligopoly may produce
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either a homogeneous product or a differentiated product.
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When members of an oligopoly react to price changes by a dominant firm, the ____ ____ model is most applicable.
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price leadership
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Price leaders make price adjustments
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- by communicating impending price adjustments to the industry. - by establishing a price that discourages new entrants into the industry. - infrequently, due to the uncertainty in rivals' response to these price changes.
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Which of the following is a model used to examine oligopolistic pricing?
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The kinked-demand curve model
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Oligopolies typically are not desirable because they
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do not achieve allocative efficiency because their price exceeds marginal cost.
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Barriers to entry exist for monopolies as well as oligopolies in the form of all the following, except
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diseconomies of scale.
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The use of advertising by oligopolists
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- may increase or decrease competition. - may increase of decrease prices.
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Oligopolists often compete through product development and advertising instead of price because
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product development and advertising are relatively difficult to copy.
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What are the negative effects if large oligopolists do not advertise?
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- Customers might purchase less efficient products that cost more. - Consumers would be unaware of important new products.
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The shape of the demand curve for a firm in a oligopoly:
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depends on the actions of rivals to price changes
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It is reasonable to assume that the demand for a non-colluding oligopolist facing a kinked-demand curve is highly ______ above the going price.
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elastic
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Barriers to entry into an oligopoly most resemble those of a:
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pure monopoly
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Why would a firm deviate from a collusive outcome as presents in the payoff matrix?
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To increase its profit
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An example of an oligopoly that produces a standardized product if the market for
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cement.
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A possible effect of limit pricing by oligopolies is that it
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may increase efficiency by setting the price closer to marginal cost and the minimum average total cost.
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One qualification to why an oligopoly may not act like a monopoly is
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due to the foreign competition that may increase efficiency through increased rivalry.
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True or false: Strategic behavior takes into account the reactions of others.
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True; Strategic behavior is self-interested behavior that takes into account the reactions of others.
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Advertising benefits society by
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conveying information to consumers.
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Which of the following contributed in making the American auto industry into a differentiated oligopoly for nearly a century?
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- the strategic behavior of competitors - the mutual interdependence of each firm's profitability - entry barriers into the auto manufacturing industry - mergers to help gain economies of scale
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Oligopolies must consider the possible reaction of rivals to its own _____, _____ and _____ decisions.
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pricing; output; and advertising
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One of the largest barriers to entry into the oil refining industry is
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the capital equipment investment.
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In the _____ model of oligopoly, firms react to price decreases but ignore price increases by other firms.
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kinked-demand
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Which of the following industries is an example of price leadership by one oligopolistic member?
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Beer
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A two-firm payoff matrix shows
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firm profit from alternative combinations of strategies.
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The oligopolistic firm's marginal revenue curve exhibits a gap or vertical segment because:
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of the sharp difference in elasticity of demand above and below the going price
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All of the following are examples of oligopolies that produce a differentiated product except
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copper.
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An oligopoly firm's demand curve will be kinked if:
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its rival match price decreases but ignore price increases
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According to the kinked-demand model of oligopoly, if two or three firms ignore a price decrease by the third firm:
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the third firm will gain sales because the other two firms' demand curves before more elastic
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To reduce uncertainty or increase profits, oligopolists tend to change their prices
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collusively.
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When members of an oligopoly meet to set prices to maximize profits this applies mainly to the _____ and/or the _____ model.
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collusion; cartel
