Supplementary Learning Materials - Videos, podcasts, ans schemes etc.
Oligopoly
This video (on the right) will give an overview of oligopoly characteristics. |
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Conduct
Note that they are TWO different ways of examining oligopolistic markets:
- Competitive Oligopoly (Non-collusive) Model
- Cooperative Oligopoly (Collusive) Model
Competitive Oligopoly
Ways of Competing
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Cooperative Oligopoly
There are also cooperative models which are good for the consumer, e.g. Alliances like Star Alliances. |
Performance
Think: So are there allocative, productive and dynamic efficiency in oligopoly?
Monopolistic Competition
Structure
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Conduct
- Behaves like a monopoly of its own product
- Hence, each firm's actions will not affect other firms to any great extent --> INDEPENDENT (See video on top contrasting mutual interdependence vs independence. )
- No single price can apply to wide range of differentiated products in the market. There is only cluster or range of prices within the product group
- Therefore, the eqm of a firm in monopolistic competition can only be applied to a typical or representative firm
- conduct non-price competition in terms of product development and product promotion. BUT it is less sophisticated than oligopolies (do you know why?)
- Occasional short term price war (esp. for shops at close vicinity)
Answers to tutorial questions
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Do TBL iRATs and tRATs first before attempt N2007 CS Qns
Click on the files below for the case study questions A lvl N2007 - Supermarket CSQ
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Have you achieved the following Learning Objectives?
Concepts and Tools of analysis• Barriers to entry
• Market concentration ratio* • Market structures – Perfect competition, monopolistic competition, oligopoly, monopoly • Product differentiation • Competition versus collusion – Cartels, contestable markets • Efficiency – Allocative, productive and dynamic efficiency |
Learning ObjectivesFirms make decisions based on their objectives, costs and revenue conditions, rival firms’ actions as well as the business risks and uncertainty associated with each possible option.
• Types of barriers to entry include financial barriers, cost barriers (including economies of scale), control of raw materials, legal barriers and strategic entry barriers by rival firms. • It is important to recognise that firms in different market structures (perfect competition, monopolistic competition, oligopoly and monopoly) make different price and non- price decisions in order to achieve their objectives. As such, knowledge of the characteristics of the market structure that firms are operating in would help in better understanding the decisions that are made. • The application of market structure characteristics to real-world context is expected. o The defining characteristics include the number and size of firms, and the degree of interdependence among firms An awareness of the market concentration ratio (which could be defined as the percentage of total sales or production accounted for by the largest firms in an industry) and its calculation is sufficient. For example, the four-firm concentration ratio refers to the percentage of total sales or production accounted for by the four largest firms in the industry. • Diagrams consisting of AR, MR, AC and MC curves could be used to illustrate the pricing and output decisions in the different types of market structure. The derivation of costs and revenue curves is not required. • In explaining the characteristics of market structures, diagrammatic analysis of the comparison of the types of market structure is not required. Instead of comparing the diagrammatic derivation of market equilibrium price and quantity across market structures, emphasis should be placed on how the different characteristics of the market structure that firms are operating in influence the price and output decisions that firms make. • An understanding that producers make price and output decisions based on the following considerations is required: o Their firms’ (or their) objectives o Costs and revenue o Competitors’ actions o Business risks and uncertainty (e.g. unpredictable fluctuations in demand) • Technical analyses of competitors’ actions, and business risks and uncertainty are not required. Note: Students need to have a firm foundation of the different market structures to be able to apply the concepts to real life situations. While the perfect competitive model can be used as benchmark when assessing the relative performances of firms, students should understand that the ideal model does not exist in reality. The monopoly model can be used to analyse market power and price leadership. The collusive behaviour of firms leading to the formation monopoly should be discussed. The kinked demand curve should be used to explain why oligopolies avoid price competitions and often compete using non-price competitions (e.g. advertisement, product differentiation and product development etc.) Simplified diagrams consisting of AR, MR, AC and MC curves can be used to illustrate the different market structures. Comparison of firms’ performances on the basis of equity, innovation and choices are included to develop students’ higher order skills and to broaden their scope in the assessment of firms beyond output and prices. It would not be necessary to examine the technicality of efficiency when assessing the market performance of firms. |