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Question 21N.1.HL.TZ0.2a

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Date November 2021 Marks available [Maximum mark: 10] Reference code 21N.1.HL.TZ0.2a
Level HL Paper 1 Time zone TZ0
Command term Explain Question number a Adapted from N/A
a.
[Maximum mark: 10]
21N.1.HL.TZ0.2a
(a)

Explain why producers in an oligopolistic market might choose to engage in non-price competition.

[10]

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

  • definitions of oligopoly, non-price competition
  • diagram of non-collusive oligopoly showing price-elastic demand above the market price and relatively price-inelastic demand below the market price and/or prisoner’s dilemma
  • an explanation of how interdependence in oligopolistic markets incentivizes oligopolistic firms to keep prices stable and therefore pursue non-price competition
  • examples of oligopolistic firms that pursue non-price competition.
Examiners report

Most candidates correctly explained that when an oligopolistic firm decreases its price the other firms in the market will decrease their prices as well and hence the demand would be price inelastic below the current price, resulting in falling total revenue. Nevertheless, those same candidates too often supported their explanations by a diagram showing positive marginal revenue (which implies that the falling price results in increasing total revenue).

Syllabus sections