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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 versus collusion

Collusive oligopoly: cartels

• equilibrium of the industry

Oligopoly

Key features of oligopoly

• barriers to entry

• interdependence of firms

Competition versus collusion

Collusive 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

fig

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QO

P1

Q1

D

D

Kinked demand for a firm under oligopolyKinked demand for a firm under oligopoly

Oligopoly

Non-collusive oligopoly: the kinked demand curve theory

• assumptions of the model

• stable prices

£

QO

P1

Q1

MC2

MC1

MR

a

bD AR

Stable price under conditions of a kinked demand curveStable price under conditions of a kinked demand curve

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