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Characteristics of Oligopoly quiz #2 Flashcards

Characteristics of Oligopoly quiz #2
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  • If one firm operating in an oligopoly raises its price and other firms do not do so, what is likely to happen?
    The firm that raises its price may lose market share to competitors who keep prices lower.
  • Oligopolies are considered to be what type of market structure?
    Oligopolies are considered an imperfectly competitive market structure.
  • A distinguishing feature of an oligopolistic industry is the tension between what?
    The tension between cooperation (collusion) and competition among firms.
  • An oligopoly is a market that is characterized by what?
    A few firms, interdependence, and barriers to entry.
  • One characteristic of an oligopoly market structure is
    Interdependence among firms in pricing and output decisions.
  • What is a natural duopoly and how does it relate to economies of scale in oligopoly markets?
    A natural duopoly occurs when economies of scale are so significant that only two firms can efficiently supply the market. This makes it inefficient for many small firms to compete, favoring just two large producers.
  • How do identical and differentiated goods affect the nature of competition in oligopoly markets?
    Identical goods lead to competition mainly on price, while differentiated goods allow firms to compete on product features, branding, or quality. Both types can exist within oligopolies.
  • Why does ownership of key resources act as a barrier to entry in oligopoly markets?
    If a few firms control essential resources, new entrants cannot access those resources and are unable to compete. This keeps the market limited to the existing firms.
  • How does government regulation, such as patents, contribute to barriers to entry in oligopolies?
    Patents grant exclusive rights to produce a good, legally preventing other firms from entering the market. This protects the patent holder from competition.
  • Why do oligopoly firms need to make strategic decisions based on their competitors' actions?
    Because firms are interdependent, each firm's pricing and output decisions affect the others. Strategic decision-making helps firms anticipate and respond to competitors' moves.