OLIGOPOLY

Sinag, Rean Fransil

Subijano, Flarizza Dianne
Tolentino, Mae Riel
Tuba, Noimie
Urriza, Carla Kien
 Oligopoly
•An oligopoly is a market form wherein a
market or industry is dominated by a
small group of large sellers. Oligopolies
can result from various forms of
collusion that reduce market
competition which then typically leads
to higher prices for consumers.
•Oligopolies have their own market
structure. There is no precise upper
limit to the number of firms in an
oligopoly, but the number must be
low enough that the actions of one
firm significantly influence the
others.
•Prices in this market are moderate
because of the presence of
competition. When one company
sets a price, others will respond in
fashion to remain competitive.
•For example, if one company
cuts prices, other players
typically follow suit. Prices are
usually higher in an oligopoly
than they would be in perfect
competition.
WH Y DO O L I GO PO L I E S E X I ST ?

•A combination of the barriers to

entry that create monopolies and the
product differentiation that
characterizes monopolistic
competition can create the setting
for an oligopoly.
•For example, when a government grants
a patent for an invention to one firm, it
may create a monopoly. When the
government grants patents to, for
example, three different pharmaceutical
companies that each has its own drug for
reducing high blood pressure, those three
firms may become an oligopoly.
 CLASSIFICATION OF OLIGOPOLY
• Perfect or Pure Oligopoly: 
If the oligopolists in an industry are producing
identical products it is called perfect or pure
oligopoly.

• Imperfect or Impure Oligopoly: 

If the oligopolists in an industry are producing
differentiated products it is called imperfect or impure
oligopoly.
 Structure No. of Producers & Degree of
Product Differentiation
Perfect Competition - Many producers,
Identical products
Imperfect competition

Monopolistic competition - Manyproducers,

Many real or perceived differences in
product
Oligopoly - Few producers,
No differences in product.
- Few producers,
Some differentiation of products
Monopoly - Single
producer,
Product without closesubstitutes
Price and Output Determination under
Oligopoly:
• (a)    If an industry is composed of few firms
each selling identical or homogenous
products and having powerful influence on
the total market, the price and output policy
of each is likely to affect the other
appreciably, therefore they will try to
promote collusion.
• (b)   In case there is product
differentiation, an oligopolist can raise or
lower his price without any fear of losing
customers or of immediate reactions
from his rivals. However, keen rivalry
among them may create condition
of monopolistic competition.
•There is no single theory which
satisfactorily explains the oligopoly
behaviour regarding price and output in
the market. Theories which have been
developed on particular set of
assumptions about the reaction of
other firms to the action of the firm
under study.
Example of Theories:

Cournot Duopoly Model, Bertrand

Duopoly Model, the Chamberlin
Model, the Kinked Demand Curve
Model, the Centralised Cartel Model,
Price Leadership Model, etc.,