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Market efficiency means that all players in the market have full and perfect information which helps them make timely and informed decisions especially on pricing. This then implies that all participants have full information to make timely decisions about investments, buying and selling. As such, an oligopoly market which is a market with few sellers and many buyers (see Griffiths and Wall, 2011; Sloman, 2011; Mankiw, 1990) should be made contestable in order to be efficient. But is this possible bearing in mind few sellers could have more power for example in determining the prices to be charged in a particular market down playing the forces of demand and supply? To some extent, an oligopoly market needs more thinking strategically compared to other market structures like monopolies or perfect competition where sellers are faced with a well outlined demand curve for the outputs and quantity is chosen where MR=MC. In an oligopoly, sellers are big and can influence the market.

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A2 AQA Economics (2140) ECON3 Case Study


Key Learning Outcomes

By the end of the case, students should be able to:
  • Understand all the nuances of what an oligopolistic market is
  • Get an understanding of how contestability improves efficiency in an oligopolistic market

 

Module: A2 AQA Economics (2140) ECON3

Assignment Title: Assess the view that making an oligopolistic market more contestable is the best way to improve the efficiency of that market. [25 marks] 
Word Count: 800 words 

 

1.0 INTRODUCTION


Market efficiency means that all players in the market have full and perfect information which helps them make timely and informed decisions especially on pricing. This then implies that all participants have full information to make timely decisions about investments, buying and selling. As such, an oligopoly market which is a market with few sellers and many buyers (see Griffiths and Wall, 2011; Sloman, 2011; Mankiw, 1990) should be made contestable in order to be efficient. But is this possible bearing in mind few sellers could have more power for example in determining the prices to be charged in a particular market down playing the forces of demand and supply? To some extent, an oligopoly market needs more thinking strategically compared to other market structures like monopolies or perfect competition where sellers are faced with a well outlined demand curve for the outputs and quantity is chosen where MR=MC. In an oligopoly, sellers are big and can influence the market.

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