oligopoly

• An oligopoly derived from two Ancient Greek words

olígos and polein
Oligos mean 'few', and Polein means 'to sell'
Oligopoly means few to sell
• It is a market form wherein a market or industry is
dominated by a small number of sellers
(oligopolists).
• A state of limited competition, in which a market is
shared by a small number of producers or sellers.
• An oligopoly is similar to a monopoly, except that
rather than one firm, two or more firms dominate
the market.
 Meaning
• When companies within the same industry
work together to increase their mutual profits
instead of competing with one another, it is
known as an oligopoly situation.
 Global oligopolies
• Google, Facebook Search, and Bing dominate
the world of online Search in the English-
speaking world.
• Facebook, Twitter, and Reddit form an
Oligopoly of social media forums online.
 Examples of oligopolies in india

Mass Media
• Balaji Telefilms, Bennett, Coleman & Co. ( The Times of India Group)
• Hindustan Times. India Today Group., Malayala Manorama & Co.
• New Delhi television.
Big Tech
• Tata Consultancy Service, Infosys, HCL Technologies, Wipro Limited.
Automakers
• Maruti Suzuki. Maruti Suzuki is the largest automotive manufacturing
company in India. ...
• Tata Motors. ...
• Mahindra and Mahindra. ...
• Hyundai Motors India
Telecom
Jio (29.45%), BSNL (26.45%), Airtel (24.27%),Tata Teleservices (5.86%), Vi (2.65%)
Airlines:
Air India: Air India (Tata), Interglobe Aviation (Indigo):, Jet Airways:, SpiceJet: ...
 Features of Oligopoly
1. Few sellers/few big sellers if there are many sellers
2. Standard or differentiated product
3. If the product is standardized that is known as a “Homogenous
oligopoly”
Ex: Cement,( ACC) Steel( TISCO, RINL), Aluminum (Hindalco, Nalco)
4. If the products are differentiated that is known as a “Heterogeneous
oligopoly”
Ex: Automobiles, Trucks, Mopeds, kitchen appliances, cigarettes,
Pharmaceuticals.
5. Oligopoly market is somewhat ambiguous , Big sellers / dominant is
not defined in terms of market share
6. Products could be identical like pure competition
7. Products could be differentiated as under monopolistic competition
8. entry and exit are possible but difficult
 Continue…..
9. Actions of individual sellers have a perceptible influence upon rivals
10. Various firms in a given oligopolistic industry are mutually interdependent
11. Concentration Ratio – the proportion of total market sales
(share) held by the top firms:
– A 4-firm concentration ratio of 75% means the top 4 firms account for
75% of all the sales in the industry.
12. Actions of a firm affect the fortunes of its rival firms
Directly, Immediately and adversely, and significant extent
13. Any change in price on the part of one firm may set off a chain of
reactions of rival actions among other firms
14. The reactions of rival firms are difficult to guess
15. There is a wide variety of behavioral patterns is possible from rivals
16. Rivals may decide to get together or another extreme, they may fight each
other
17. Price determination under an oligopoly is difficult unless some
assumptions is made about the behavior of rivals.
 Different models based on assumptions of rival reactions
• Different Models Assumptions
1. Cournot Model Quantity produced by his rivals is not affected
with respect to his own quantity decision
( Ignore their interdependence)
2. Collusion model Firms in the industry recognize their
interdependency and decide to collaborate
in the form of CARTEL in the matter of pricing
their products
3.Market share model
4. Leader and follower model

18. Absence of understanding among rival firms, there will be a price war
19. Price wars each competitor shades his price below that of the others and
consequently some times oligopoly price falls even below AVC
 Price determination under oligopoly – Perfect Collusion model
Assumption:
• All firms in an industry recognize their interdependence
• Decide to collaborate in the form of CARTEL in the matter of pricing of products
( CARTEL means Central Authority )
Ex: OPEC, organization of Petroleum Exporting countries since 1974
• If the products are Homogenous , the pricing would be similar to that of under pure
Monopoly with multiple plant operations
• There will be one Market demand (AR and MR)
• There will be cost functions (MC and AC) as the no.of competing firms in the industry
• The various MC curves could then be summed up horizontally to get the Combined MC
Curve (CMC)
• Joint profit maximization output for the industry would be where
• Intersection of CMC and MR curve
• Given equilibrium level of output, the AR curve give the equilibrium price
• The distribution of Industry output among firms
• Distribution would be obtained by equating MR to each of MC through horizontal
straight line
• The Straight line passing through the point of intersection between CMC and MR curves
Price determination in oligopoly under collusion model
 Explanation about price determination
• CMC was obtained as the horizontal summation of MC1 and MC2
• AR and MR represent the demand corresponding marginal revenue
curves of the industry as a whole
• The industry output is OQ
• The industry output divided among the two firms as OQ1 and OQ2
• The sum of two firms output must be equal to industry output OQ
• Each of the firm sells its product at an uniform price equal to OP
• All firms in an industry sell at the same price
• The output and profits of each firm is not equal
• The cost function of each firm is different as firms have different
factors of production
• Cost efficient firms will make more profits than others