OLIGOPOLY MARKET

RAXZANE MAE BARAIRO

MHICAELA KYLE AGUILAR
ALZAMIL ISMAEL
OLIGOPOLY MARKET

Is a market form wherein a industry is

dominated by a small number of large sellers.
characterized by few sellers, selling the
homogeneous or differentiated products.
 EXAMPLES

 Smart Phone Operating System

 Computer Operating System

 Music Industry

 Auto Industry
 OTHER EXAMPLES

 Airlines
 Supermarkets

 Steel Industry

 Health Insurance
 FEATURES OF OLIGOPOLY

1. Few large firms

 Thereare a few large firms that dominate the

industry.
2. Firms interact with each other

 Firmsin oligopoly do not act independently

of each other.
3. Product Differentiation

 Goes hand in hand with developing a strong value

proposition to make a product or service attractive
to a target market.
4. Collusion

 Is
an agreement among firms to divide
the market, set prices, or limit
production.
5. FIRMS MAY PURSUE OBJECTIVES OTHER THAN
PROFIT MAXIMIZATION

a) Maximize sales:

b) Prevent government intervention:

6. There may be barriers to entry into the industry
 Firms may not be able to enter the industry because
of:
a) High investments

b) Strong consumer loyalty

c) Control over the crucial raw material

d) Government Licenses
 SHAPE OF THE DEMAND CURVE OF A
FIRM IN OLIGOPOLY

 Ifthe price leader sets the price at B then

all firms face a kinked demand curve ABC.
 Elastic demand curve
increase in price, lose many customers
A
Price
D = AR
P1 B
Inelastic demand curve
decrease in price, gain few
customers

C
Q1
Quantity
1. Along the elastic demand curve above point B, if a firm
increases price it will lose many customers and revenue.

2. Along the inelastic demand curve below on B, if a firm

decreases price so will competitors, so it will gain few
customers but will lose revenue.
 RELATIONSHIP BETWEEN THE DEMAND
CURVE AND THE MARGINAL REVENUE CURVE.

 Because the D/C is kinked the firms MR curve

consists of two distinct parts.
 It is constant between D and E.

 Between these points if MC changes, price will

not change.
 A
Price D = AR

P1 B
D

MR
E
C
Q1
Quantity
 PRICE RIGIDITY/STICKY PRICES
 Prices tend not to change when costs change in
oligopoly.
 Firms fear the reaction of their competitors.

 If a firm increase price their competitor will not,

so they will lose customers & revenue.
 If a firms decrease price so will competitors, so
they will not gain customers and lose revenue.
 CONSTANT PRICES

 Firms in oligopoly may not increase prices when

costs increase as it may cost more to change
catalogues and price lists than change the price.
 In this case the oligopolies will absorb the price
increase themselves.
LONG RUN EQUILIBRIUM
OF A FIRM IN OLIGOPOLY
 LONG RUN EQUILIBRIUM OF A FIRM IN
OLIGOPOLY

1. Eq is where MC=MR & MC is rising.

2. This occurs at point G on the diagram.
3. The firm will produce at Q 1
4. The firm will charge price P 1
5. Due to barriers to entry firms may earn SNP if
AR > AC.
6. Even if costs rise between D & E prices remain
rigid at P 1.
 THE FUTURE OF OLIGOPOLY

 Some people think U.S. and other Western

economies are moving toward oligopoly as
dominant market structure
 Prediction has not come true
 Today, there are hundreds and thousands of ongoing
businesses in United States
 Possible reasons
 Antitrust law
 Globalization of markets
 Technological change
ANTITRUST LEGISLATION AND
ENFORCEMENT
 Three types of actions
 Preventing collusive agreements among firms
 Such as price-fixing agreements
 Breaking up or limiting activities of large firms—
oligopolists and monopolists—whose market
dominance harms consumers
 Preventing mergers that would lead to harmful
market domination
 While thrust of these policies is to preserve
competition
 Type of competition preserved—and zeal with
which policies are applied—can shift
 THE GLOBALIZATION OF MARKETS
 Globalization introduces competition
 By enlarging markets from national ones to global ones,
international trade can increase the number of firms in
a market
 Entry of U.S. producers has helped to increase
competition in foreign markets for movies,
television shows, clothing, household cleaning
products, and prepared foods
 While consumers in each nation may have access
to more firms, these may be larger and more
powerful firms
 Creating greater likelihood of strategic interaction
and danger of collusion
 TECHNOLOGICAL CHANGE
 Technological change works
 To increase competition by creating new
substitute goods
 To reduce barriers to entry
 To increase size of market
 However, technologies on the other hand
 encourage oligopoly by actually increasing
MES of typical firm
 Result could be strategic interaction, or collusion,
among large national players
 Thereby encouraging formation of oligopolies
THANK YOU !!!