Oligopoly and interdependent decisions
| English | 中文 | Pinyin |
|---|---|---|
| oligopoly/ˌɒlɪˈɡɒpəli/ | 寡头垄断 | guǎ tóu lǒng duàn |
| collusion/kəˈluːʒn/ | 合谋 | hé móu |
A decision you can investigate
- Three mobile-network companies serve most customers in a region. One offers a cheaper data package; the others must consider whether to respond.
- A firm’s result depends partly on what its rivals do.
Build the explanation
- An oligopoly 寡头垄断 has a few firms dominating the market. Entry barriers and product differentiation can sustain their position. Interdependence means a decision’s outcome depends on rivals’ responses.
- Price competition cuts prices or offers discounts. Non-price competition uses quality, coverage, service or promotion. Collusion 合谋 coordinates conduct; a cartel may restrict competition and maintain high prices.
Work through the evidence
- A network cutting its package price may gain customers if rivals keep their prices. If rivals match the cut, the first firm gains fewer new users while revenue per customer falls across firms.
- Better coverage can attract customers without the same price response, but investment costs matter. Collusion might raise firms’ margins while harming customers through higher prices or less choice.
Which is non-price competition?
Reliability competes through quality; a price cut is price competition and an agreement may be collusion.
Test the limits
- A few firms do not prove that collusion occurred. Look for evidence, and distinguish lawful independent responses from prohibited agreements under the applicable rules.
- Oligopoly can support large-scale investment and innovation as well as weak competition. A price war can benefit current consumers but put pressure on investment or a weaker firm.
Why can high start-up costs sustain an oligopoly?
An entry barrier can reduce new competition but does not guarantee profits.
A price cut guarantees an oligopolist will gain market share.
Rivals may match the price cut, changing customer switching and its revenue effect.
Apply and explain your answer
- Why must a network consider rival responses before cutting price?
- Rivals may match the cut, reducing the gain in customers and changing the effect on revenue and profit.
Which evidence alone is insufficient to prove collusion?
Concentration is a structural feature; it is not proof of agreement.
Use the terms precisely
- oligopoly: A market dominated by a small number of firms.
- collusion: Coordination between firms that restricts competition.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
A network cutting its package price may gain customers if rivals keep their prices. If rivals match the cut, the first firm gains fewer new users while revenue per customer falls across firms. Better coverage can attract customers without the same price response, but investment costs matter. Collusion might raise firms’ margins while harming customers through higher prices or less choice.
A few firms do not prove that collusion occurred. Look for evidence, and distinguish lawful independent responses from prohibited agreements under the applicable rules. Oligopoly can support large-scale investment and innovation as well as weak competition. A price war can benefit current consumers but put pressure on investment or a weaker firm.
An oligopoly has a few firms dominating the market. Entry barriers and product differentiation can sustain their position. Interdependence means a decision’s outcome depends on rivals’ responses.