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 |
 =
== 

`


: A   dominated by a small number
of participants who are able to collectively exert
control over  and   .

The word  is derived from the Greek word

oligos which means . An oligopoly is much like
a monopoly, in which only one company exerts control
over most of a market. In an oligopoly, there are at
least two firms controlling the market.
 


  

 It is dominated by a few large suppliers who

are interdependent on each other, before
making any  
 and 


 

. It is also explained as a market
condition in which sellers are so few that an
action of any one of them will materially
affect price and have a measurable impact
on competitors; in other words; since there
are few participants in this type of market,
each 

 is aware of the actions of
the other.
 u 
  

= 

 A few firms selling similar product.

 Each firm produces branded products.

 Likely to be significant entry barriers into

the market in the long run which allows
firms to make supernormal profits.
 Interdependence between competing
firms. Businesses have to take into
account likely reactions of rivals to any
change in price and output.
o Products can be homogenous (standardized)
or heterogeneous (differentiated).

o The sellers are the price makers and not price

takers, since the few sellers mutually dominate
the pricing decisions.

o The sellers can achieve 


 ;
since for the large producers as the level of
production rises, the cost per unit of products
decreases; thus ensuring higher profits.






=
=
=
== 





 è `

ÿ A Duopoly, is a simple form of
Oligopoly in which only two firms dominate a
market. e.g.:ÿ 

  

! " 
 D 


# In Oligopsony, there are
few buyers and large number of sellers. The
other characteristics are same as Oligopoly.
e.g.:ÿ 

, where we have three major
firms   $ " `
 |
 

  
 · %  

 ÿ A market with a
few sellers (oligopoly) and a few buyers
(Oligopsony) is referred as Bilateral
Oligopoly.
 Î  # åhen there is a formal
agreement among the Oligopolist for a
collusion (to increase prices and restrict
production in the same way as a monopoly)
with an objective to reduce risk and foster
joint profit it is termed as Cartel. e.g.:ÿ

& 


"
'




()
   

 



There are 
 major theories about oligopoly pricing:
 Oligopoly firms collaborate to charge the monopoly
price and get monopoly profits
 Oligopoly firms compete on price so that price and
profits will be the same as a competitive industry
 Oligopoly price and profits will be between the
monopoly and competitive ends of the scale
 Oligopoly prices and profits are "indeterminate"
because of the difficulties in modeling interdependent
price and output decisions.
 "

 $
*

# 




Œirms compete for market share and the demand from
consumers in lots of ways. åe make an important distinction
between  


and *

# 


.
 


can involve discounting the price of a
product (or a range of products) to increase demand.
*

# 


focuses on other strategies for
increasing market share. Consider the example of the highly
competitive UK supermarket industry where nonÿprice
competition has become very important in the battle for
sales. It includes:
* |ass media advertising and marketing.
* Store Loyalty cards.
* Banking and other Œinancial Services (including
travel insurance).
* Inÿstore chemists/post offices/crèches.
* rome delivery systems.
* Discounted petrol at hyperÿmarkets.
* Extension of opening hours (24 hour
shopping in many stores).
* Innovative use of technology for shoppers
including selfÿscanning machines.
* Œinancial incentives to shop at offÿpeak
times.
* Internet shopping for customers.
   "


 
| 

åhen one firm has a dominant position

in the market the oligopoly may
experience price leadership. The firms
with lower market shares may simply
follow the pricing changes prompted by
the dominant firms. åe see examples of
this with the |ajor |ortgage lenders and
Petrol retailers.
u

 




 This assumes that firms seek to maximize profits.
 If they increase price, then they will lose a large share of the
market because they become uncompetitive compared to
other firms, therefore demand is elastic for price increases.
 If firms cut price then they would gain a big increase in
|arket share, however it is unlikely that firms will allow this.
Therefore other firms follow suit and cut price as well.
Therefore demand will only increase by a small amount:
Demand is inelastic for a price cut
 Therefore this suggests that prices will be rigid in Oligopoly
 The diagram suggests that a change in |arginal Cost still
leads to the same price, because of the kinked demand
curve( remember profit max occurs where | = |C