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OLIGOPOLY CHARACTERISTICS
The oligopoly form of market is characterized
by:
- A few large dominant firms, with many small
ones, a product either standardized or
differentiated,
- Power of dominant firms over price, but fear
of retaliation,
- Technological or economic barriers to
become a dominant firm,
-Extensive use of nonprice competition
because of the fear of price wars.

OLIGOPOLY CONCENTRATION

An

oligopoly form of market is


characterized by the presence of a few
dominant firms. There may be a large
number of small firms, but only the
major firm have the power to retaliate.
This results in a high concentration of the
industry in only 2 to 10 firms with large
market shares.

OLIGOPOLY CONCENTRATION
CAUSES
The

most notable causes for the high


concentration in oligopoly type of markets
are:
- economies of scale present in production
of certain goods,
- business cycles eliminating weak
competitors,
- benefits from firms merging, and
- other barriers such as technological
development and advertising.

Oligopoly
Key

features of oligopoly

barriers to entry
interdependence of firms
Competition
Collusive

versus collusion

oligopoly: cartels

equilibrium of the industry

Oligopoly
Key

features of oligopoly

barriers to entry
interdependence of firms
Competition
Collusive

versus collusion

oligopoly: cartels

equilibrium of the industry


allocating and enforcing quotas

Oligopoly
Tacit

collusion

price leadership: dominant firm

Oligopoly
Tacit

collusion

price leadership: dominant firm


price leadership: barometric

Oligopoly
Tacit

collusion

price leadership: dominant firm


price leadership: barometric
rules of thumb

Oligopoly

Factors favouring collusion

Few firms
Open with each other
Similar production methods and average costs
Similar products
Dominant firm
Significant entry barriers
Stable market
No government measures to curb collusion

Kinked demand for a firm under oligopoly

D
P1

D
O

Q1
fig

Oligopoly
Non-collusive

oligopoly: the kinked


demand curve theory

assumptions of the model


stable prices

Stable price under conditions of a kinked demand


curve

MC2
MC1

P1

D AR

b
O

Q1

MR

Oligopoly
Non-collusive

oligopoly: the kinked


demand curve theory

assumptions of the model


stable prices
limitations of the model
Oligopoly

and the public interest

Oligopoly
Non-collusive

oligopoly: the kinked


demand curve theory

assumptions of the model


stable prices
limitations of the model
Oligopoly

and the public interest

advantages

Oligopoly
Non-collusive

oligopoly: the kinked demand

curve theory

assumptions of the model


stable prices
limitations of the model
Oligopoly

and the public interest

advantages
disadvantages

Oligopoly

Non-collusive

oligopoly: the kinked demand curve theory

assumptions of the model


stable prices
limitations of the model
Oligopoly

and the public interest

advantages
disadvantages
difficulties in drawing general conclusions