Essay Plans

"Oligopolists tend to compete only on non-price competition." Discuss.

SYNOPSIS:

POINTS:

Define oligopoly.
Draw kinked demand curve explaining price rigidity.
Go through areas of non-price competition:
1. Free deliveries and installation
2. Warranties
3. Credit
4. Opening hours (banks)
5. Branding
6. Advertising
7. Trade stamps
8. After sales service
9. Expanding into new markets
Remember though, that there are different types of oligopoly!! Non-collusive - three possible approaches:
1. Assumes rivals will NOT react and assess their likely reaction.
2. Assumes rivals will react and assess their likely reaction.
3. Identifies the best possible move its rival can make and then plans countermeasures accordingly (essence of game theory).
Give examples of price wars and, depending on when you are taking the exam, current information on holiday prices.
A worked example of Game Theory would help.
Collusive oligopoly
- objectives are sought through collusion
- methods may be formal, (cartel) or informal (tacit agreement)
A diagram showing the workings of a cartel should be inserted here with a brief description backed up by examples - remember you only have at best 45 minutes!!