Oligopoly lesson 6a

OLIGOPOLY [email_address]

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: barometric

Oligopoly
Tacit collusion
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 £ Q O P 1 Q 1 D D

Oligopoly
Non-collusive oligopoly: the kinked demand curve theory
assumptions of the model
stable prices

Stable price under conditions of a kinked demand curve £ Q O P 1 Q 1 D  AR MC 2 MC 1 MR a b

Oligopoly
stable prices
limitations of the model
Oligopoly and the public interest

Oligopoly
stable prices
advantages

Oligopoly
stable prices
advantages
disadvantages

Oligopoly
stable prices
advantages
disadvantages
difficulties in drawing general conclusions

Oligopoly lesson 6a

by Charles Chua

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