PRESENTED BY

Asma Pervaiz
Hira Azeem
Waqar Siddique Ali
Abbas Arif
Oligopoly
Oligopoly is a market structure in which
only a few sellers offer similar or
identical products.
a market structure with a limited number
of sellers who actually dominate the market
Oligopolies are markets where profit maximizing
competitors, rather market players, set strategies by
paying close attention to how rivals are likely to react in
prevalent situations.

Oligopoly can be classified in two categories:
(i) Pure Oligopoly
(ii) Differentiated Oligopoly

Products are differentiated for benefit of
consumers but it is only at a certain price
The Market Structures

There are four types of market structures
Perfect competition
Monopolistic competition.
Oligopoly
Monopoly
UNIQUE ASPECTS OF
OLIGOPOLY

MUTUAL INTERDEPENDENCE
REPEATED INTERACTION
CHARACTERISTICS

DUOPOLY
The simplest form of oligopoly
having only two members.
Small number of large firms,
Identical or differentiated products,
The industry has significant barriers to entry

COMPETITIONS, MONOPOLIES &
CARTELS

Collusion:
an agreement between
producers for deciding quantity
to be produced and the price to
be charged against that
quantity.
Cartel:
Group of firms or
producers acting in unison is
cartel
Agreement is made not only over total production or quantity to
be thrown into market but also on the amount each member is
allowed to produce. Each member wants maximum share as larger
share provides opportunity for maximum profit earning.
Each member wants maximum share as larger share
provides opportunity for maximum profit earning
Difficulty with cartels
Antitrust laws prohibit agreements
Squabbling among cartel members over their shares
In absence of a binding agreement, the monopoly outcome is
unlikely.
If duopolists pursue their own self-interest when deciding how
much to produce, they produce a quantity greater than the
monopoly quantity, charge a price lower than the monopoly price,
and earn total profit less than the monopoly profit
Kink Demand Curve
A bend in a standard demand curve that is
a result of competitors decreasing their prices to match
each others, but not raising them to achieve the same
effect. The thought is that once a business has reduced
their price to a certain level any fluctuation that raises the
price will cause the firm to lose customers.

Kink Demand Curve
First used by Paul M. Sweezy.
Oligopolists will act and react in a way that keeps condition
tolerable for all members of the industry.
Products are quite similar and, therefore their prices almost same.
If one firm is selling at a price lower than that of its competitors,
these competitors will be compelled to reduce their prices to
match this firms price.
On the other hand if one firm decided to sell at a higher price its
competitors do not react by raising their price.
So, in the first situation (i.e. Price reduction) the firm does not gain,
while the later the firm loses its customer to its rival.


Kink Demand Curve
Assume Price of Petrol PKR 100. Charged by all three firms.
If one firm increase price to PKR 110
The price-raising firm will experience a large proportionate drop in
sales and the demand for its petrol following the price rise was
very elastic.
Another scenario when one of the firms decided to cut its price to
PKR 90 .
The other two firms assuming decline in sale, cut their price to
PKR 90.
Rise in demand is small as compared to fall in price so revenue fall.
Demand is very inelastic following a price cut.

Kink Demand Curve
A
Price
Rs. 90
Elastic
Demand
Inelastic Demand
Q
1

B
C
MR
Quantity
Kink Demand Curve
The kink in the demand curve at price Rs. 90 and output Q1 means that there is a
discontinuity in the firm's marginal revenue curve.
Top Segment: The flatter top portion of the marginal revenue corresponds
to the more elastic demand generated by price increases.
Bottom Segment: The steeper bottom portion of the marginal revenue
corresponds to the less elastic demand generated by price decreases.
Middle Segment: The vertical middle segment connecting the top and bottom
segments that occur at the output quantity Qo corresponds with the kink of
the curve.

CONCLUSION
Mutual interdependence among the firms and price rigidity are two
typical features in oligopoly market.
Although firms are rivals, they are mutually interdependent.
No firm likes to resort price change which will harm its business,
hence price competition is not significant in oligopoly market.
Policy makers must regulate the behavior of oligopolists through
antitrust laws


The Goods & Bads of
Oligopoly

GOODS
Innovations
Economies of Scale

BADS
Inefficiency
Concentration


QUESTIONS
PLEASE!
20