Understanding Oligopoly

What is an oligopoly?

• A market structure with a single seller

• A market structure with a few large firms dominating the industry

• A market structure where there are many small firms competing

• A market structure where firms sell identical products

Which of the following industries is most likely to be an example of an oligopoly?

• Local grocery stores

• Mobile phone manufacturers

• Street food vendors

• Individual farmers

How do firms in an oligopoly typically compete?

• By engaging in price wars frequently

• By heavily relying on non-price competition, such as advertising and branding

• By producing identical products with no differentiation

• By completely ignoring their competitors' actions

What is collusion in an oligopoly?

• When firms compete aggressively on price

• When firms secretly agree to set prices or limit production

• When firms ignore each other's pricing strategies

• When new firms easily enter the industry

Why is there often interdependence between firms in an oligopoly?

• Because there are many small firms with no market influence

• Because firms do not react to competitors' actions

• Because the actions of one firm significantly impact the decisions of other firms

• Because firms in an oligopoly have no control over price

What is the key characteristic of products in an oligopolistic market?

• Products are always identical

• Products are always highly differentiated

• Products may be either identical or differentiated

• Firms produce completely different goods

What is a cartel?

• A group of firms that compete against each other

• A formal agreement between firms to control prices and limit competition

• A single firm that controls an entire industry

• A government agency that regulates businesses

Why do firms in an oligopoly prefer non-price competition over price competition?

• Because lowering prices always leads to higher profits

• Because price wars can reduce overall industry profitability

• Because customers only care about price, not branding or quality

• Because non-price competition is illegal in most countries

Why is it difficult for new firms to enter an oligopolistic market?

• Because existing firms have significant economies of scale and brand loyalty

• Because there are no barriers to entry

• Because oligopolies have perfect competition

• Because government policies prevent market entry

Which of the following is an example of non-price competition in an oligopoly?

• Cutting prices drastically to attract more customers

• Reducing production to increase scarcity

• Launching a new advertising campaign and offering better customer service

• Merging with a competitor to increase market power