Joseph Thomson 13.3
June 2015 Paper 3 Essay 2 Q10 Friday 28th February 2020
Evaluate the view that governments should never intervene to influence how oligopolists
collude or cooperate on such issues as fixing prices, varying output, conducting
research, developing products, or carrying out any other aspect of their business. (25
marks)
Intro - define oligopoly and collusion, also the idea of competition regulation like OFCOM.
Point Effects Price fixing R&D Efficiency
Knowledge Oligopolies may Cartels are often High profits may Disregarding
occur in markets formed in order be reinvested in potential for
where only a few to restrict output research and dynacism, there
firms can and collude development, is likely to be low
operate, high fixing prices improving efficiency, a
sunk costs & dynamic welfare loss
barriers to entry efficiency
Application Supermarkets ‘Roaming Motor vehicles N/A
charges’
Analysis Easy for Allows greater Naturally may Little incentive to
consumers to profit for firms, improve brand cut X-
compare, good consumers loyalty, which inefficiency, low
information and forced to pay could serve to productive
NPC, hard for higher prices increase market efficiency (prof
new firms to (rigidity), loss of share and max) & prices
forge a place consumer worsen oligopoly likely to be
surplus conditions above MC
Diagram N/A Oligopoly LRAC down-shift N/A
(kinked demand)
Evaluation Less choice for No reason for Companies are DE could bring
consumers, price, brand settled, no international
could increase loyalty exists, incentive to comp; good for
contestability unrealistic innovate the economy
Conclusion - Government should intervene as market failure, however regulation may lead to
regulatory capture (gov failure), therefore contestability may be better. Inequitable effect on
consumers and heavy welfare losses. Price fixing is the most important issue which harms all
parties involved. In the long run this issue may improve through enterprise of new firms, but
likely to persist due to brand loyalty.
An oligopoly is a narrow market structure, where few firms take up the majority of the market
share; whilst not as extreme as monopoly, oligopoly is still a form of imperfect competition,
June 2015 Paper 3 Essay 2 Q10 Friday 28th February 2020
Evaluate the view that governments should never intervene to influence how oligopolists
collude or cooperate on such issues as fixing prices, varying output, conducting
research, developing products, or carrying out any other aspect of their business. (25
marks)
Intro - define oligopoly and collusion, also the idea of competition regulation like OFCOM.
Point Effects Price fixing R&D Efficiency
Knowledge Oligopolies may Cartels are often High profits may Disregarding
occur in markets formed in order be reinvested in potential for
where only a few to restrict output research and dynacism, there
firms can and collude development, is likely to be low
operate, high fixing prices improving efficiency, a
sunk costs & dynamic welfare loss
barriers to entry efficiency
Application Supermarkets ‘Roaming Motor vehicles N/A
charges’
Analysis Easy for Allows greater Naturally may Little incentive to
consumers to profit for firms, improve brand cut X-
compare, good consumers loyalty, which inefficiency, low
information and forced to pay could serve to productive
NPC, hard for higher prices increase market efficiency (prof
new firms to (rigidity), loss of share and max) & prices
forge a place consumer worsen oligopoly likely to be
surplus conditions above MC
Diagram N/A Oligopoly LRAC down-shift N/A
(kinked demand)
Evaluation Less choice for No reason for Companies are DE could bring
consumers, price, brand settled, no international
could increase loyalty exists, incentive to comp; good for
contestability unrealistic innovate the economy
Conclusion - Government should intervene as market failure, however regulation may lead to
regulatory capture (gov failure), therefore contestability may be better. Inequitable effect on
consumers and heavy welfare losses. Price fixing is the most important issue which harms all
parties involved. In the long run this issue may improve through enterprise of new firms, but
likely to persist due to brand loyalty.
An oligopoly is a narrow market structure, where few firms take up the majority of the market
share; whilst not as extreme as monopoly, oligopoly is still a form of imperfect competition,
