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A high concentration ratio is a key feature of an Oligopolistic Market - Leaving Cert Economics - Question 4 - 2015
Question 4
A high concentration ratio is a key feature of an Oligopolistic Market. (a) Explain this statement and give one example. (b) Outline two ways oligopolists behave i... show full transcript
Worked Solution & Example Answer:A high concentration ratio is a key feature of an Oligopolistic Market - Leaving Cert Economics - Question 4 - 2015
Step 1
Explain this statement and give one example.
Answer
A high concentration ratio refers to a market structure where a small number of firms account for a significant portion of total industry output. This is characteristic of an oligopolistic market, where these firms have considerable market power, allowing them to influence prices and outputs collectively.
For instance, the grocery trade in Ireland exhibits a high concentration ratio, with a few large supermarket chains dominating the market. These chains account for a large segment of grocery sales, impacting prices and consumer choices significantly.
Step 2
Outline two ways oligopolists behave in the market:
Answer
Oligopolists engage in interdependent decision-making where the actions of one firm affect others. Here are two ways they behave:
(i) Competing via Non-Price Competition: Oligopolists may focus on brand loyalty, customer service, and product differentiation rather than competing solely on price. For example, one firm might improve its service quality to attract more customers without lowering prices.
(ii) Engaging in Collusion: Firms in an oligopoly may come together to coordinate their actions for mutual benefit, setting prices or output levels to maximize their collective profits. This can occur either explicitly or implicitly, where companies agree to limit production or fix prices to stabilize the market.