For a market to be considered a differentiated product oligopoly, there must be _.
A no barriers to entry
B significant barriers to entry
C very many firms
D few firms
E products that are perfect substitutes for each other
F products that stand out as unique
The correct answer and explanation is:
The correct answers are:
B significant barriers to entry
D few firms
F products that stand out as unique
Explanation:
A differentiated product oligopoly is a market structure where a few firms dominate the market, offering products that are not perfect substitutes but are perceived as different by consumers. This structure is characterized by the following features:
- Significant barriers to entry (B): Oligopolies generally have barriers that make it difficult for new firms to enter the market. These barriers can include high startup costs, control over essential resources, economies of scale, and brand loyalty. In the case of differentiated products, established firms may have an advantage because consumers already associate their products with a particular quality or feature. This reduces the chances of new firms competing effectively.
- Few firms (D): A key characteristic of oligopolies is the small number of firms controlling the majority of the market share. This concentration allows firms to influence prices and output levels, which is a fundamental aspect of oligopolistic markets. The competition in this type of market is less intense compared to perfect competition, but still exists.
- Products that stand out as unique (F): In a differentiated product oligopoly, products are not perfect substitutes. Firms compete by offering products with unique features, branding, or quality differences that make them distinct in the eyes of consumers. For example, in the automobile industry, while all cars are fundamentally similar in function, each brand offers specific attributes that make their products stand out. This differentiation can be through design, features, or even customer service.
Incorrect Answers:
- A no barriers to entry: Oligopolies typically have significant barriers to entry, making it difficult for new competitors to enter the market.
- C very many firms: Oligopolies are defined by a small number of firms, not many.
- E products that are perfect substitutes for each other: Differentiated product oligopolies rely on product differentiation, so perfect substitutes do not apply in this context.