21.

OLIGOPOLY

WHAT IS OLIGOPOLY?

• OLIGOPOLY – MARKET DOMINATED BY A FEW LARGE FIRMS.( 2 -6 FIRMS)

• EX: GLOBAL MOTOR INDUSTRY. –
TOYOYA,VOLLSVAGAN,HONDA,NISSAN,HYUNDAI.
 FEATURES OF OLIGOPOLY
• 1. FEW FIRMS - THERE IS NO EXACT NUMBER BUT IT COULD BE AS FEW AS THREE,FOUR,FIVE OR
SIX .THIS IS A COMMON MARKET STRUCTURE.
• 2. LARGE FIRMS DOMINATE –THEY WILL HAVE A LARGE PROPORTION OF THE MARKET TO
THEMSELVES.
• 3. DIFFERENT PRODUCTS –THE PRODUCTS SOLD BY EACH LARGE FIRMS WILL BE VERY CLOSE
SUBSTITUTES. BUT THERE ARE LIKELY TO BE SOME DIFFERENCES.
• 4. BARRIERS TO ENTRY – SET UP COSTS ARE VERY HIGH.
• 5. COLLUSION – INFORMAL AGREEMENTS BETWEEN FIRMS TO RESTRICT COMPETITION.
EACH FIRM AGREES TO SUPPLY A PARTICULAR REGION AND NOT TO COMPETE EACH OTHER.
PRICE FIXING –ALL FIRMS AGREE TO CHARGE A SAME PRICE
6. NON –PRICE COMPETITION –SOME FIRMS COMPETE USING ADVERTISING AND PROMOTIONS SUCH
AS COUPONS ,LOYALTY CARDS ,FREE OFFERS ETC……
7. PRICE COMPETITION –FIRMS ARE AFRAID OF PRICE WARS.-IF ONE FIRMS CUTS PRICE ,OTHERS IN
THE MARKET HAVE TO DO THE SAME AND THEY LOSE SALES.
 ADVANTAGES OF OLIGOPOLY
• 1. CHOICE –HERE CONSUMERS ARE PROVIDED WITH SOME CHOICES.
• 2. QUALITY – SOME MARKETS QUALITY MIGHT BE IN SUPERIOR LEVEL.
• 3.ECONOMIES OF SCALE – THEIR AVERAGE COST WILL BE LOWER.
• 4. INNOVATION – LEVEL OF INNOVATION MIGHT VARY.
• 5. PRICE WARS –CONSUMERS WILL BENEFIT OF LOWER PRICES.

DISADVANTAGES OF OLIGOPOLY

• CONSUMERS MAY PAY HIGHER PRICES.

• A CARTEL MIGHT EXIST. THIS IS WHERE GROUP OF FIRMS OR COUNTRIES
FORMALLY JOIN TOGETHER AND AGREE ON PRICING OR OUTPUT LEVELS IN THE
MARKET. IF CARTELS ARE SUCCESSFUL ,THEY ARE ABLE TO ACT AS A MONOPOLY.
 MCQ
• 1. WHICH OF THE FOLLOWING IS LIKELY TO BE OLIGOPOLISTIC?
• A) CHICKEN FARMING
• B) PETROL
• C)RESTAURANT
• D) FLOWER SELLING

1. WHAT IS THE DIFFERENCE BETWEEN

MONOPOLY AND OLIGOPOLY.
REVISION ECON
• 1.WRITE INTERNAL ECONOMIES OF SCALE AND EXTERNAL ECONOMIES OF SCALE.
• 2.WRITE THE FORMULAS AND DRAW THE CURVES OF THE FOLLOWING
• TOTAL COST
• AVERAGE COST
• 3. WRITE THE FORMULA OF PROFIT AND REVENUE AND EXPLAIN THE DIFFERENCE .
• 4. WRITE THREE FEATURES OF MONOPOLY AND OLIGOPOLY MARKET.
• 5. WHAT IS COLLUSION?
• 6.WHAT IS PATENT?
• 7.WRITE THE FORMULA FOR LABOR PRODUCTIVITY?
• 8. WHAT ARE THE ADVANTAGES OF HAVING COMPETITION TO THE CONSUMERS?
• 9.WHAT ARE THE FACTORS THAT AFFECT FOR THE SHIFT FOR THE DEMAND CURVE ?
• 10.WHAT ARE THE MAIN ECONOMIC PROBLEMS?