Question 4 Outline the main fcatures of an oligopoly industry. (2.5 marks) a. Qa

Question

Question 4 Outline the main fcatures of an oligopoly industry. (2.5 marks) a. Qantas and Virgin are two profit maximising companics supplying air travel in the Australian domestic market. What conditions must hold for workable compctition to exist in this market? (2.5 marks) b. The firms are anxious to discourage new firms from entering the market. The following payoff matrix shows the profits of Qantas and Virgin (combined) and any new entrant under two scenarios, accommodation of the new entrant with a high price or a price war by the incumbents. The profits of Qantas and Virgin are presented first followed by the profits of the new entrant c. New entrant Enter Stay out Qantas and Virgin High prices 40, 30 60, i. Does the new entrant have a dominant strategy? Explain your answer (2.5 marks) ii. What is the Nash equilibrium? Explain your answer (2.5 marks) iv. What strategies might Qantas and Virgin adopt to deter entry by the new firm? Low prices 30, 20 50, 0 (2.5 marks)

Explanation / Answer

Answer for Question a)

Olligopoly is charecterized by following features

1) Competition:

So we can say that Oligipolistic industry is consisits of less players selling smiliar products hence they keep close watch on other players move and it is possible if they have complete information regarding other players move.

2) Lack of Uniformity

In this feature we have different players in market all of them of different size some may be of smaller size and some may be of bigger size.

3) Price Rigidity

All the firms have to adhere with the unique price no player is allowed to reduce his own price.

4) Interdependace

Oligopolistic inndustry is some kind of cartels which tells us the inerdependance of palyers in this market.

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