Introduction to Oligopoly Markets: Characteristics and Pricing Strategies

The video tutorial explores the concept of oligopoly, a market structure characterized by a small number of large firms. It contrasts oligopoly with competitive and monopolistic markets, highlighting features like market power, interdependency, and product differentiation. Examples of oligopolies include mobile networks and video game platforms. The tutorial also discusses market concentration, barriers to entry, and strategic interdependency among firms. It covers collusion, price wars, and pricing strategies like predatory and limit pricing, emphasizing the importance of strategic decision-making in oligopoly markets.

What is a key characteristic of an oligopoly market?

• A single firm dominating the market

• Firms producing identical products

• A few large firms with significant market power

• Many small firms with no market power

Which of the following is an example of an oligopoly?

• A small bakery

• Local farmers' market

• A single gas station in a town

• Mobile phone networks

What is a duopoly?

• A market with one dominant firm

• A market with two dominant firms

• A market with no competition

• A market with many small firms

Why is interdependency important in oligopoly markets?

• Firms have no influence over each other

• Firms must consider rivals' actions when making decisions

• Firms always collude to set prices

• Firms operate independently without considering rivals

What is a potential outcome of firms not differentiating their products in an oligopoly?

• Higher prices

• Decreased competition

• Collusion among firms

• Increased market share

What is a price war?

• Firms maintaining stable prices

• Firms colluding to set high prices

• Firms reducing prices to undercut competitors

• Firms increasing prices to maximize profits

What is predatory pricing?

• Setting prices based on consumer demand

• Setting prices equal to competitors

• Setting prices below cost to drive out competitors

• Setting prices above market value

What is the effect of a price war on consumer surplus?

• Consumer surplus remains unchanged

• Consumer surplus decreases

• Consumer surplus increases

• Consumer surplus is eliminated

How does limit pricing deter new entrants?

• By increasing market prices

• By reducing product quality

• By increasing advertising

• By setting prices low enough to prevent new entrants from making profits

What is the main goal of limit pricing?

• To maximize short-term profits

• To create barriers to entry

• To increase product variety

• To reduce production costs