OLIGOPOLY

The term ‘oligopoly’ has been derived from two greek words, ‘oligo’ which means ‘few’ and ‘Polein’ which means sellers. Thus oligopoly is an abridged version of monopolistic competition. It is a competition among few big sellers each one of them selling either homogenous or heterogeneous products. Each seller under oligopoly competition has a market share substantial enough to influence the price and output decisions of rival firms. Oligopoly markets can be classified into two namely pure or homogenous oligopoly and differentiated or heterogeneous oligopoly.

CHARACTERISTIC FEATURES OF OLIGOPOLY
1)

Few Sellers: The oligopoly market is characterised by few
firms or sellers, each sharing a substantial portion of market.

large the total

2)

Interdependence amongst the firms: On account of the fewness of number, the firms are independent in their decisionmaking with regard to price, production and promotional policies. Selling costs: Aggressive advertising and sales promotion exercises is an important characteristic feature of oligopolistic competition.

3)

4)

Group costs: The oligopoly market consists of a small group of big sellers who are extremely interdependent.
Indeterminate Average revenue curve: The average revenue curve or the demand curve of an oligopoly firm is found to be indeterminate on account of the inability to predict or foresee the reactions of the competing firms to one’s own business strategies. Price Rigidity – or inelastic Price: Heterogeneous Oligopoly is characterised by price inelasticity or rigidity.

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MODELS OF PRICE AND OUTPUT DETERMINATION UNDER
OLIGOPOLY

Different models of price and output determination under oligopoly have been developed on the basis of the nature of competition. It is found that the competition between the firms in a oligopolistic market structure assumes three forms: 1) Open competition leading to price war and finally in non-price competition as exemplified by the Kinked demand curve model. 2) Price leadership model in which larger firms assume market leadership and determine market prices to be followed by the smaller firms. 3) Collusive models which shows co-operation or collusion between firms with regard to price determination and market sharing.

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