> ## Content Index > Fetch the complete content index at: https://www.a-level-economics-tutor.com/llms.txt > Use this file to discover other available public pages before exploring further. # Evaluate the view that oligopolies serve society well - URL: https://www.a-level-economics-tutor.com/evaluate-the-view-that-oligopolies-serve-society-well/ - Published: 2026-10-21T16:37:19.000Z - Updated: 2026-10-21T16:37:19.000Z - Author: Jaisul Naik - Tags: AQA 25 mark question ### AQA A-Level Economics Paper 1 June 2025 **Evaluate the view that oligopolies serve society well. (June 2025)** **Plan** - **Paragraph 1** - **Argument: on the one hand, oligopolies often serve society well because customers can expect price stability and non-price competition** - **Diagram: kinked demand curve** - **Evaluation: however, the kinked demand curve may not apply to all firms, especially firms with brand loyalty** - **Paragraph 2** - **Argument: on the other hand, oligopolies might be damaging to society due to the threat of collusion** - **Diagram: game theory diagram (optional) + monopoly diagram** - **Evaluation: however, firms who collude might be more likely to achieve dynamic effienciency** An oligopoly is a market structure that is dominated by a few firms. In an oligopoly, there are usually relatively high barriers to entry and there is some degree of product differentiation. On the one hand, oligopolies often serve society well because customers can expect price stability and non-price competition. This is demonstrated by the kinked demand curve. Firms in an oligopoly are interdependent, which means that one firm's decisions affect the other firms, especially in terms of pricing. The kinked demand curve shows how it is difficult for firms to compete on price. At prices above p1, average revenue is elastic, which means that a higher price leads to a greater proportional decrease in quantity demanded. This is because customers are likely to buy from other firms in the market, who are cheaper. At prices below p1, average revenue is inelastic, which means a lower price leads to a smaller proportional change in quantity demanded. This is because other firms will also charge a lower price to prevent being undercut, due to a fear of losing market share. Lower prices could also start an unnecessary price war. Therefore, both higher prices and lower prices would lead to a fall in total revenue for the firm. Overall, the model explains why consumers can expect prices to be quite stable in an oligopoly. In addition to this, firms compete on non-price factors to attract or keep customers, and this means that customers can further benefit from a variety of choice in terms of customer service and loyalty rewards. For example, many coffee shops are likely to offer stamps and rewards to regular customers, and likewise, supermarkets offer loyalty points for returning customers to use. ![](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/10/image-27.png) However, the assumptions of the kinked demand curve may not hold true in reality, and therefore some firms do end up changing prices and gaining revenue from this decision. Firstly, firms that produce a higher level of output will have lower long-run average costs due to their ability to exploit greater economies of scale, such as bulk-buying. Therefore, they have a greater ability to remain profitable even when cutting prices. This means that they can limit pricing, and this makes it more difficult for the smaller firms in the market to compete. We have seen Aldi's strategy of lowering prices being matched or beaten by larger supermarkets with 'Aldi Price Match' stickers. Secondly, many firms may be able to increase prices due to a combination of strong brand loyalty as well as customer inertia, which occurs when customers continue to buy from the same brand out of habit. For example, elderly people who have shopped at M&S for many years are unlikely to switch to another supermarket despite M&S raising their prices. This means that some of the larger firms can raise prices yet demand falls by a smaller proportion, allowing them to increase their revenue. Some firms are also able to have local monopolies by owning stores in remote areas such as motorways and airports, and therefore charge higher prices without losing any customers. On the other hand, oligopolies might be damaging to society due to the threat of collusion. Despite collusion being illegal in the UK and EU, firms could still attempt to collude secretly. This threat of tacit collusion becomes more likely when barriers to entry are especially high, and there are fewer firms sharing a similar market share. These firms can agree to set high prices, and limit output, allowing them to operate as if they were a monopoly. The two-firm, two-outcome model below shows how each firm must decide between setting a higher price or a lower price after considering their competitor's response. The safest option each firm is a low price because it is the better option regardless of the other firm's strategy. The only way that both firms can improve their outcomes is by collectively agreeing to both set a high price. Given that both firms are aware of this, there is an incentive for them to collude; agreeing to set high prices together, allowing them to act like a monopoly. The second diagram shows the costs and revenue of a firm with monopoly power; the firm charges a price of p1, and makes significant supernormal profits (shaded rectangle). This outcome is allocatively inefficient as price is far greater than the marginal cost of the last unit produced. Consumers are being over-charged and social welfare is not being maximised. Consumer surplus is much lower than it could have been if this market was more competitive. Consumer surplus is the difference between the price consumers are willing to pay, and the price they actually pay. Overall, oligopolies can be damaging to society as there is a threat of collusion and therefore high prices. ![](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/10/image-29.png) ![](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/10/image-28.png) However, one advantage of collusive oligopolies might be dynamic efficiency because this can only be achieved when firms are making supernormal profits in the long-run. Dynamic efficiency can be achieved when firms are able to reduce costs and improve and innovate their products over time. By making long-run supernormal profits, firms gain the ability to reinvest consistently. For example, Apple have reinvested their profits and innovated their products; such as improving their headphones and offering AirPods which can now also serve as hearing aids. Over time, customers can benefit from greater satisfaction. Additionally, there are two risks to collusion, which makes it very unlikely to occur in the real world. Firms who do collude illegally are likely to be caught and fined by the CMA. VW and BMW were caught colluding and were fined £750 million by the EU's competition authority. Additionally, it is possible that one firm breaks the informal agreement and reduces prices to try to gain customers. Overall, collusion is unlikely to happen often in an oligopoly although it could potentially allow for greater innovation in some cases. In conclusion, it is likely that oligopolies will serve society well, because collusion is quite unlikely, and without collusion, firms are forced to keep low and stable prices. In addition, firms within an oligopoly must compete on non-price factors, which allows customers to benefit from excellent customer service and loyalty deals. However, we have seen that firms will always be tempted to collude in an oligopoly, so this must be monitered constantly by the CMA. If the CMA are able to prevent collusion from happening, then oligopolies should usually benefit society. --- ### A-Level Economics Tutoring I offer one-to-one and small group A-Level Economics tutoring for students across the UK and internationally. With 100+ five-star Google reviews and tutoring experience since 2017, I specialise in helping students understand difficult concepts and improve their exam technique. [A-Level Economics Tutoring](https://www.a-level-economics-tutor.com/economics-tutoring/) [100+ 5-star Google Reviews](https://www.a-level-economics-tutor.com/reviews/) [Contact Me](https://www.a-level-economics-tutor.com/contact/) [Back to A-Level Economics Notes](https://www.a-level-economics-tutor.com/a-level-economics-notes/)