Oligopoly

Waqas Ali Haider

ERP#18235
 What is an 'Oligopoly'
• Oligopoly lies between Monopolistic Competition and Monopoly.
• Oligopoly is a market structure with a small number of firms, none of
which can keep the others from having significant influence.

Market
Characteristics
Structure
Number of Number of Barriers to Entry & Exit Types of
Sellers Buyers Entry Activity Products

Oligopoly Few firms with Unspecified High Difficult entry (often Products can be
interdependent pricing due to economies of either differentiated
and quantity decision scale) or non-differentiated
Barriers to Entry
• Natural or Legal barriers to entry can create oligopoly.
• Economies of Scale and Demand form a natural barrier to entry that
can create a natural oligopoly.

• Two Natural Oligopolies:

a) Natural Duopoly
b) Natural Oligopoly with Three Firms
Natural Duopoly
• An Oligopoly market with two firms.
• Uber and Careem ??

Natural Oligopoly with three firms

• An Oligopoly market with three firms.
Legal Oilgopoly
• A legal oligopoly arises when a legal barrier to entry protectsthe small
number of firms in a market.
Small Number of Firms
• Oligopoly consists of small number of firms
• With large share of the market
a) Interdependent
b) Temptation to cooperate
A) Interdependence
• Action of one firm influence the profits of all the firms.

B) Temptation to Cooperate
• Formation of CARTEL to increase profits.
Cartel:
• A cartel is a group of firms acting together to limit output, raise price
and increase economic profits.
Examples of Oligopoly