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What is an oligopoly? What is collusion?

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Presentation on theme: "What is an oligopoly? What is collusion?"— Presentation transcript:

1 What is an oligopoly? What is collusion?
Oligopoly is a market structure in which a few very large sellers dominate the industry. Collusion is a formal agreement to set specific prices or to otherwise behave in a cooperative manner

2 Why might oligopolies sometimes be tempted to act in collusion?
Oligopolies produce generally similar products and often compete on a non-price basis, leading them to act interdependently. This interdependence entices them to act together to set prices or cooperate closely for the benefit of all the firms.

3 Why do we study pure competition even though there are no purely competitive markets?
Existing firms face less competition, ask higher prices, and offer fewer products than would be the case in purely competitive markets. Therefore, purely competitive markets are theoretically ideal situations to use in evaluating other market structures.

4 What role does advertising play in monopolistic competition?
Advertising is used to differentiate one product from all others with the intent of attracting consumers and selling at higher prices.

5 Why do markets dominated by oligopolies result in high prices for the consumer?
Oligopolies often compete on a non-price basis, which is expensive. The costs are passed on to consumers.

6 Why are some types of monopolies considered acceptable while others are not?
The nature of the circumstances dictates that society is best served by a monopoly, such as, for example, for natural, geographic, technological, and government monopolies.

7 Explain why externalities can cause market failures.
Their costs and benefits are not reflected in the market prices that buyers pay.

8 What factors reduce competition in a market?
On the supply side, mergers and combinations of companies result in fewer firms competing in a market. Fewer buyers reduce competition on the demand side of the market.

9 How can externalities or spillovers be both good and bad?
Economic activities can benefit some third parties who were not involved in them and at the same time harm other third parties.

10 Why would the Federal Trade Commission issue a cease and desist order to a company that was found to be engaged in price discrimination? The FTC would issue the order for company to stop this practice of charging different customers different prices because that is unfair business practice and distorts the functioning of the free market.

11 How does the regulation of monopolies and agency oversight of business practices help protect consumers? Monopolies tend to control prices because they have little or no competition. This unfairly raises prices for consumers who have nowhere else to go to buy a monopolistic product. Agency oversight ensures that businesses engage in fair competition and that their products are safe to use.

12 Why are some government regulations beneficial for consumers?
Some government regulations benefit consumers by ensuring that, for example, food is safe to eat and that appliances, cars, and other goods work properly and are not dangerous for consumers to use.

13 How does the government promote economic efficiency?
Government mandates public disclosure, or transparency, on the part of businesses who sell to consumers. This regulation lets the government, other businesses, and other companies see if there is fraud or other noncompetitive prices.

14 Why is the U.S. economy considered a free enterprise system?
The U.S. is considered a free enterprise economy because, despite limited government involvement, individuals and businesses are free to compete in an open and fair marketplace.


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