1. a) please explain the difference between the collusive and competitive oligop
ID: 1204224 • Letter: 1
Question
1.
a) please explain the difference between the collusive and competitive oligopoly models and explain the role that the number of firms and barriers to entry play in determining how real-world oligopolistic industries behave
b) show graphically and explain how a monopoly results in a deadweight loss. Also point out the redistribution that takes place in society because of monopoly. (*edit: You don't have to give graph if you do not know it,though it would be nice. I mainly need the explanation and to point out the redistribution that takes place)
Explanation / Answer
a) A Collusive oligopoly is an industry consisting of only a few producers who think together with secret policies aiming to dominate a certain market through product pricing and to dictate market shares. A competitive oligopoly is a market which is dominated by only a few large firms which do not compete through price but otherwise through advertising, product differentiation , packing etc., The number of large firms dominates oligopolistic industry generating substantial market control, the extent of market control depending on the number of firms and its size. In a Oligopolistic industry have control through barriers of entry as patents, resource ownership, brand name recognition , start up cost .
b) There will be a dead weightloss to society if a market does not produce at its efficient point. The lost consumer surplus plus the lost producer surplus is the total deadweight loss to society. It is the deadweight loss which makes monopoly ineffiecient as it is a loss to society. Redistribution of income leads to a new welfare gain for society, so this should be justified from a utilitarian perspective.
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