A Level Economics AQA Practice Exam

What characterises a non-collusive oligopoly?

1. Firms agree to keep prices low

2. Firms avoid secret agreements on prices or output

3. All firms set their prices simultaneously

4. All firms achieve maximum market share

The correct answer is: Firms avoid secret agreements on prices or output

In a non-collusive oligopoly, firms operate independently without making agreements or colluding on prices or output. This structure allows firms to react to competitors' actions, often resulting in price and output strategies that reflect their own interests while still being aware of the market dynamics and the actions of other firms. The lack of secret agreements means that firms are not bound to fix prices or coordinate output, maintaining competitive behavior while being aware of their interdependence. This characteristic leads to market conditions where firms may compete on factors such as prices, advertising, and product differentiation rather than engaging in overt collusion. In contrast, the other options suggest forms of collusion or simultaneous strategies that contradict the nature of a non-collusive environment. For example, agreeing to keep prices low or setting prices simultaneously implies a level of coordination that is inconsistent with non-collusive behavior. Additionally, aiming for all firms to achieve maximum market share suggests a collusive agreement to dominate the market, which is also at odds with the competitive nature of a non-collusive oligopoly.