Answer to Question #86425 in Microeconomics for tek

Question

to what extent are oligopolistic market structure undesirable in relation to economic efficiency?
(2 reasons for why its undesirable, and 2 reasons for why its desirable)

Answer 1

Whether oligopolies are desirable depends on the type of industry and the type of oligopoly in mention.

Consumers tend to benefit more from competitive oligopoly because such structures have rigid pricing and do not increase prices. Prices are rigid as explained from the kinked demand curve, and even if they move, tend to be sticky downwards. On the other hand, collusive oligopolies tend to practice price leadership and cartel pricing which will result in higher prices and less consumer welfare. Variety is also considerably less than the competitive oligopoly which is characterised by high level of product differentiation, since they do not use price competition.

Source:

https://qeducation.sg/economics-resources/b-discuss-the-view-that-an-oligopoly-is-always-efficient-in-the-market-15/