Oligopolists may be dynamically efficient in terms of innovation and new product and process development . The super-normal profits they generate may be used to innovate, in which case the consumer may gain.
Why are oligopolies inefficient?
Hence, oligopolies exhibit the same inefficiencies as a monopoly. Because the marginal cost curve intersects the marginal revenue curve before it intersects the average total cost curve, oligopolies never reach an efficient scale of production efficiency , since they never operate at their minimum average total cost.
Are oligopolies dynamically efficient?
Oligopolists may be dynamically efficient in terms of innovation and new product and process development . The super-normal profits they generate may be used to innovate, in which case the consumer may gain.
Are monopolies markets dynamically efficient?
Monopolists can also be dynamically efficient – once protected from competition monopolies may undertake product or process innovation to derive higher profits, and in so doing become dynamically efficient. ... Because of barriers to entry, a monopolist can protect its inventions and innovations from theft or copying.
What market structures are dynamically efficient?
Dynamic efficiency gains are often to be see in monopolistic competition and oligopolistic competition – in the latter case, where there are sufficiently large number of scaled businesses to earn and re-invest supernormal profits and where there are also many smaller firms perhaps better able to be innovative in niches ...
What are the disadvantages of oligopoly?
- High concentration reduces consumer choice.
- Cartel-like behaviour reduces competition and can lead to higher prices and reduced output.
- Given the lack of competition, oligopolists may be free to engage in the manipulation of consumer decision making.
What are the 4 characteristics of oligopoly?
- Few sellers. There are just several sellers who control all or most of the sales in the industry.
- Barriers to entry. It is difficult to enter an oligopoly industry and compete as a small start-up company. ...
- Interdependence. ...
- Prevalent advertising.
Can monopolies be efficient?
Monopoly firms will not achieve productive efficiency as firms will produce at an output which is less than the output of min ATC. X-inefficiency may occur since there is no competitive pressure to produce at the minimum possible costs.
How can I become dynamically efficient?
Dynamic efficiency may also involve implementing better working practices and better management of human capital . For example, better relationships with unions that help to introduce new working practices. Dynamic efficiency involves a trade-off. To invest in better technology may involve higher costs in the short run.
Is perfect competition dynamically efficient?
Because there is a lack of investment, the firms may become static – there is no improvement in productivity and no reduction in costs over time; this makes them dynamically inefficient .
What are the types of efficiency?
Economists usually distinguish between three types of efficiency: allocative efficiency
Which market structure is efficient?
Competitive markets are considered to be statically efficient – both allocatively and productively.
Why perfect competition is efficient?
In the long run in a perfectly competitive market—because of the process of entry and exit— the price in the market is equal to the minimum of the long-run average cost curve . ... In other words, goods are being produced and sold at the lowest possible average cost.
What are the pros and cons of an oligopoly?
- It simplifies the market for consumers. ...
- It creates higher profits. ...
- It puts resources into refinement. ...
- It can still offer competitive pricing. ...
- Fewer choices isn’t always a good thing. ...
- Trickle-down economics requires perfect ethics. ...
- Innovation becomes non-existent. ...
- Price fixing is common.
Is oligopoly good for the economy?
Oligopolies may adopt a highly competitive strategy , in which case they can generate similar benefits to more competitive market structures, such as lower prices. Even though there are a few firms, making the market uncompetitive, their behaviour may be highly competitive.
What are the advantages of oligopoly?
- low level of competition;
- higher potential to receive big profits;
- products and services controlled through oligopolies are in great demand;
- a limited number of companies makes it easier for customers to compare products;
- easier for people to choose products;
- competitive prices;
