Oligopoly

 meaning of oligopoly
It is an important form of imperfect
competition. Oligopoly is said to
prevail when there are few firms or
sellers in the market, producing or
selling a product is known as
oligopoly.
Characteristics of oligopoly
 few sellers: there are only few
sellers selling either homogeneous
or differentiated products.
 inter- dependences : the firms
under oligopolistic market depend
on each other in fixing the prices
and determination of output.
 uncertainty : interdependence of
firms creates uncertainty for all
firms, therefore the demand or
revenue curve of each firm is
indeterminate. Because any action
taken by a firm may or may not be
responded by other firms in the
markets.
 High cross elasticities : the
products produced by the firms
under oliogopolistic market have a
high cross elasticities. Hence there
is always a fear of retaliation by
rivals.
 elements of monopoly : under
oligopoly each firm controls
large share of the market and
produces a differentiated
product it enjoys monopoly
power in determining price to
that extent of differentiation.
 Rigid or sticky price : the firms
under oligopoly sticks to its own
price, oligopoly prices tend to be
rigid or `sticky’ . If a firm resort to
price cut in the market, it will be
followed by other firm in the
market resulting in ` price war’. To
avoid that, the firms stick to their
own prices.
 Constant struggle : the firms
under oligopoly are subjected to
constant struggle of rivals against
rivals.
Kinked demand curve : A firm under
oligopoly will have a kinky demand
curve because of price rigidity.
 pricing under oligopoly
they are:-
kinky demand curve.
Price Leadership.
Pricing under collusion.
(collusive oligopoly)
independent pricing.
 kinky demand curve:- the demand curve
facing the oligopolist is indeterminate. The
demand curve shows what amounts of
the product a firm can sell at different
prices.
Price leadership :- the price determination
under oligopoly is not an easy task. The
practical solution is that of the formation
of collusion, formal or tacit and there by
work out an agreed pattern of price.
 pricing under collusion :- there is
another development witnessed in
oligopolic industries and that is of
collusion. Under this situation, the
oligopolists arrive at a tacit or
formal agreement on a common
policy to be followed by them.
 independent pricing:- under
differentiated oligopoly, the firms
may follow an independent price
and output policy which is similar to
monopoly price. This is possible
because, each firm products
differentiated products.
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