Understanding Oligopoly Markets: Competition, Interdependence, and Collusion

The video explores the concept of oligopoly, a market structure with few large firms. It highlights the interdependency among firms, leading to non-price competition. The kinked demand curve is explained, showing why price wars are ineffective. The video also covers collusion, its types, and its impact on industry profits and regulation. It concludes with the merits and demerits of collusion, including efficiency and potential harm from price cartels.

What is a key characteristic of firms in an oligopoly?

• They have no influence over market prices.

• They are highly interdependent.

• They focus solely on price competition.

• They operate independently without considering rivals.

Why do firms in an oligopoly often avoid price competition?

• It leads to significant winners.

• It results in large economic losses.

• It is the most effective strategy.

• It increases market share for all firms.

Which of the following is an example of an oligopoly market in the UK?

• The fashion industry

• The technology industry

• The supermarket industry

• The automotive industry

What does the kinked demand curve suggest about price changes in an oligopoly?

• Price increases lead to higher demand.

• Price decreases significantly boost revenue.

• Undercutting prices is ineffective.

• Price changes have no impact on demand.

In the context of the kinked demand curve, what happens when prices are raised?

• Revenue increases.

• Demand drops significantly.

• Demand increases significantly.

• Demand remains constant.

What is collusion in the context of oligopolies?

• Firms independently setting prices.

• Firms ignoring each other's strategies.

• Firms competing aggressively on price.

• Firms working together to maximize industry profits.

Which type of collusion leaves a paper trail?

• Implicit collusion

• Competitive collusion

• Natural collusion

• Explicit collusion