Oligopoly
Here we discuss about Oligopoly.
Oligopoly Definition
We can define Oligopoly as:
“It is the market model in which there are very few sellers
producing either homogenous (Similar) or differentiated products and where the
decision making powers of the firm depend on the expected reactions of other
market firms and also the entry to the market is difficult or blocked by big
firms”.
Examples of Oligopoly Market Model include Automobiles
Companies, Software House Companies, Air-Lines, Oil Producing and Exporting
Countries.
Features or Characteristics of Oligopoly
1. Few Sellers
It is a market situation in which the number of firms or
sellers is very few. They produce similar or differentiated products.
2. Interdependence
In this market model, since there is good substitute of the
products, so the policies of one producer significantly affect the decisions
making powers of other sellers. One can see Higher Cross Elasticity of Demand,
so the pricing, output decisions of one firm are considered by other firms.
3. Advertisement
Due to Substitution and interdependence of one seller to
another, there is much competition on them. So they spend money on
advertisements. You can say that “Advertising can become a life and death
matter in this market Model”.
4. Competition
You can find true competition prevailing among few sellers.
There are rivals against rivals.
5. Lack of Uniformity
Another characteristic of oligopoly market is the lack of
uniformity in size of firms. You can see that some firms are small and some are
really big firms. So, you can say that “Uniformity is Rare”.
6. Demand Curve
As there is there is no uniformity of firms, so you can
draw exact behaviors patterns of producers or sellers and hence as a result
demand curve can not be drawn accurately with definiteness.
7. No Unique Pattern of Pricing Behavior
There is no unique pattern of pricing in oligopoly because
there is rivals’ agreement among firms with regard to price control and output
changes. It leads to Monopoly under Oligopoly. For Example, OPEC Countries
determine the prices and output of oil on daily basis to control the market
behavior.
8. Difficult To Entry
Since there is true competition among fellers and there are
rivals among rivals, so new sellers can not be easily entered into the market.
There are lots of Market Barriers in the form of Government Restrictions,
Licensed Patents and other challenges faced by a new firm intended to enter
into the market.
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