Monopolistic competition and oligopoly

edwinesosa's version from 2015-05-25 11:40


Question Answer
characteristics of monopolistic competitiondifferentiated products + price makers + low barriers to entry + high number of firms
when are firms efficient in monopolistic competitionNever
characteristics of oligopolyhigh concentration + high barriers to entry + firms are interdependent
why are oligopolies price stableif lower price then others just lower theirs; if raise price then lose customers
what is predatory pricing and limitationspricing below AVC to force out of market; limits - illegal + short term loss + firms re-enter market
whats limit pricing and limitationsset price below entrants AC to deter entry which is doable as experienced firms have lower AC; Limits - hard to judge entrants AC(imperfect info) + depends on cost advantage + firms reputaion as they limit consumer choice + lower profits
price leadershiptacit collusion whereby you increase price and hope competitors follow; Limits - illegal + reputation + short term loss + only dominant firms can use it successfully
Other types of pricing strategiesPrestige Pricing Eg Jewellery + loss leader + price skimming + penetration pricing ( start price low to gain consumer base then slowly increase)
Non price strategiesAdvertise + product redesign + sales promo + customer service improvemnts + place-distribution eg online catalogue + mergers and acquisitions + customer service improvement


Question Answer
ideal factors needed to colludelarge amount of market power + high barriers to entry + high concentration + similar products + innefective comp policy
impacts of collusionhigher prices and lower consumer surplus + price stability and guaranteed supply + higher supernormal profits + inneficiency + dynamic gains + international competitiveness
why may collusive equilibrium not last foreverUndercut + firms may report each other + illegal so CC stops it
advantage of being first mover with regards to undercuttingheps brand reputation + shorty term profits + customer loyalty
disadvantages of first mover with regards to price leadershipless profit short term and may not work
Advantages of being a first moveryou can set up barriers to entry Eg brand loyalty and patents and the fact costs will be lower than entrant firms + attracting customers + pre emption of resources + monopsony power
disadvantages of being a first movefree rider effects + risk +lower flexible ie less able to fid gaps in the market like new firms or adapt products to suit customer needs
benefits of having monospsony powerhigher profits + lower costs due to cheaper supplies
impacts on buyers of monopsony powerreduced price gained + less supplies ordered + overdependence on monopsonist