The reasons for non-price competition, the operation of cartels, price leadership, price agreements, price wars and barriers to entry
Oligopolists often avoid competing on price because cutting prices triggers retaliation. Instead, they compete through advertising and product quality, secretly fix prices with rivals, or follow a dominant firm's lead.
Real World
The lysine cartel of the 1990s (exposed in the film The Informant!) saw ADM and rivals secretly fix prices globally, raising lysine costs for livestock farmers by an estimated 70%. Meanwhile, Coca-Cola and Pepsi wage continuous non-price competition through advertising spend exceeding $4 billion annually.
Exam Focus
For a 'discuss' or 'evaluate' question, contrast the short-run profit gain from a cartel with the long-run risk of CMA investigation and breakdown — this structure scores AO3 marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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