A Level Economics: Complete Summary of Oligopoly Market Structure
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Course
A Level Economics (9708)
Institution
This note not only covers all concepts required to understand oligopoly market structure with practical explanations but also provides students with relevant questions from past exam papers. Therefore, students can relate immediately the knowledge from the note to exam questions in an easy way.
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A Level Economics Notes
Oligopoly Market Structure
Questions Notes
What is an oligopoly A market structure characterised by a small number of firms, none of
market structure? which can keep the others from having significant influence.
What are the examples Technology industry (Apple, Windows), android mobile phone industry
of oligopoly market (Samsung, Huawei, LG, Motorola, Xiaomi), airline industry (Garuda and
structure? Lion Air in Indonesia).
What are the aims of • Profit Maximization: Firms aim to generate as much profit as
firms operating in the possible.
oligopoly market • Sales Maximization: Firms seek to sell as much of a good or
structure? service as possible.
• Increased Market Share/Market Dominance: Firms may aim to
maximize their market share to dominate the industry.
• Social/Environmental Concerns: Some firms prioritize social and
environmental responsibility, incurring extra expenses to choose
products that don't harm the environment or adopting
environmentally friendly policies.
What are the barriers to Economies of scale, government regulation, access to supply and
entry in the oligopoly distribution channels, capital requirements, and brand loyalty
market structure?
Do firms in the oligopoly Collusion
market compete? Collusion is a form of price competition where firms act together and
in agreement to fix prices, divide a market, or otherwise restrict
competition. In an oligopoly, collusion is possible due to the mutual
interdependence of firms, where a change in strategy by one firm
affects the sales and profits of other firms. Collusion can lead to fixed
market prices, limiting price competition among firms, and resulting in
a negatively-sloping demand curve.
Price competition
Price competition involves firms seeking to increase sales and attract
customers through changes in the price of the product. In an oligopoly,
firms can compete on the basis of price, but the kinked demand curve
theory suggests that prices are sticky and well-established, leading
firms to focus on non-price competition.
Non-price competition
Non-price competition refers to the methods (product quality, design,
innovation, unique selling points, customer service) used by firms to
attract customers and increase sales other than a change in the price
of the product. In an oligopoly, non-price competition becomes
important due to the limited price competition, and firms compete on
the basis of product differentiation, quality, brand image, and customer
service to gain market share and achieve brand loyalty.
by Rahmad Wibowo
, A Level Economics Notes
Oligopoly Market Structure
What is kinked demand This cost-revenue schedule proves why the oligopolist’s demand curve
curve? is ‘kinked’.
Here we can see that the firm's average revenue curve falls with
quantity, but because there are two different reactions to price -
elastic for a rise, and inelastic for a fall - there is a kink in the demand
(AR) curve and the MR curve will have a discontinuous portion
(between output 6 and 7, as highlighted in the schedule).
The elastic response to the price rise results from rivals not changing
their price in response, whereas the inelastic response to a price drop
results in rivals being forced to 'follow suit' given that rivals would
experience a considerable fall in market share if they did not reduce
price.
If we transfer the figures to a graph we arrive at the classic kinked
demand curve. Profits are maximised at output 6 (and price 75), which
is where marginal cost (MC) equals marginal revenue (MR).
The area for super-normal profits is also highlighted.
by Rahmad Wibowo
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