Oligopoly Edexcel International GCSE Economics revision
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In plain words
Many real markets are neither competitive nor a monopoly. A handful of big firms share most of the sales: think of mobile phone networks, supermarkets or airlines. This is an oligopoly.
Because there are so few of them, each firm watches the others closely. What one does, the rest must answer.
6 things to know
- An oligopoly is a market dominated by a few large firms.
- Features: few firms, large firms that dominate, different (branded) products, barriers to entry, and both price and non-price competition.
- Non-price competition means competing without cutting price: advertising, branding, loyalty cards, free delivery, better quality.
- Collusion is when firms agree not to compete, for example by fixing prices. A group of firms that does this is a cartel. It keeps prices high and is illegal in many countries.
- A price war, where firms keep undercutting each other, lowers prices for consumers for a time, but can drive smaller firms out of business.
- Advantages: choice, quality and innovation, as firms compete through their products. Disadvantages: collusion and high prices.
Tips and tricks
- Collusion and competition are the two ways an oligopoly can go. Be ready to explain the effect of each on prices.
- Oligopolists prefer non-price competition, because a price cut is quickly matched by rivals and leaves everyone with less profit.
It lands in your notebook with its questions as flashcards.
Oligopoly: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
Which describes an oligopoly?
"Oligo" means few.
Which is an example of non-price competition?
It attracts customers without changing the price.
Firms in an oligopoly secretly agree to charge the same high price. This is
Agreeing not to compete on price is collusion, and the group is a cartel.
What is a likely short-term effect of a price war on consumers?
Firms undercut one another to win customers.
Why do firms in an oligopoly watch each other closely?
With so few firms, each one's actions change the market for the rest.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Oligopoly
Edexcel International GCSE Economics 4EC1 · 8 marks · papermunch.org
Name ______________________________ Date ______________
Define an oligopoly.[2]
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A market dominated by a few large firms.
Explain why firms in an oligopoly often use non-price competition.[3]
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If one firm cuts its price, its rivals are likely to cut theirs too, so all of them earn less. Advertising, branding and loyalty schemes attract customers without starting a price war.
Explain how a cartel harms consumers.[3]
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The firms agree to fix a high price and not to compete with each other. Consumers pay more than they would in a competitive market and cannot find a cheaper rival.
Answers: Oligopoly
- 1. A market dominated by a few large firms.
- 2. If one firm cuts its price, its rivals are likely to cut theirs too, so all of them earn less. Advertising, branding and loyalty schemes attract customers without starting a price war.
- 3. The firms agree to fix a high price and not to compete with each other. Consumers pay more than they would in a competitive market and cannot find a cheaper rival.