Oligopoly Concept & Price Leadership Concept, Introduction, Oligopolistic firm,

2. PRESTIGE INSTITUTE OF
MANAGEMENT GWALIOR
Presented by:-
Deepanshu Goyal
Devendra Singh Rathore
Meghna Sharma

4. Term ‘oligopoly’ is derived from two Greek words, “Oleg's”
and “Pollen”. Oleg’s means few and pollen means to sell.
 There are few firm or sellers in the market producing &
selling a product.
 Referred to as “Competition” among few.
 Firms in Oligopoly produces either homogeneous product
or a product which are close but not perfect substitute of
each other.
 Number of sellers of a product is 2 to 10.
INTRODUCTION

5.  A situation in which a particular market in controlled by a
small group of firms.
 An Oligopoly is much more like a monopoly, in which only
one company exert, control over most of the market. In
an oligopoly, there are at least two firms
Example: The Retail gas market is a good example of an
oligopoly because small number of firms control a large
majority of the market.
DEFINITION

6.  Interdependence
 Advertising
 Group behavior
 Competition
 Barrier to entry of firms
 Lack of uniformity
 Existence of Price rigidity
 No unique pattern of pricing behavior
Characteristics

7. According to Burns, “If changes are usually or
always inaugurated by the same firm & usually
or always followed with similar price changes
by other sellers, price competition may be said
to involve price leadership”.
PRICE LEADERSHIP MODEL

8. Three kinds of price leadership are commonly
distinguished in the literature:
─ The barometric price leadership model
─ Low cost price Leadership model
─ Dominant firm price leadership model
Kinds of Price Leadership Model

9. The Barometric price leadership model is that in
which there is no leader firm as such but one firm
among the oligopolistic firms with the wisest
management which announces a price change first
which is followed by other firm in the industry. It is a
firm act like a barometer in forecasting changes in
cost and demand of industry. On the basis of formal
or informal agreement , all the other firm accept such
a firm as the leader & follow it in making price
changes for product.
BAROMETRIC PRICE LEADERSHIP
MODEL

10. In the low cost price leadership model, an oligopolistic firm
having lower costs than the other firms sets a lower price
which other firms have to follow. Thus the low cost firm
becomes the price leader.
This is also knows as price leadership by the efficient
firm. Hence, firms with relatively higher costs fear that the
competition with the efficient firm will result in price war
which may result in the erosion of their market share, and
may eliminate them in the long run if the price fell lower
than the average cost.
Low cost Price Leadership model

11. This model rests on the assumptions that the oligopoly
industry is composed of one large firm together with many
small firms. The large firm is the dominant firm which, if it
desires, can drive out its rivals by a price war. The
dominant firm fixes the price and small firms act as a price
takers. This type of price leadership also called partial
monopoly, as the dominant firm wields more or less
monopoly power since the small firms can sell any amount
of output at the price determined by the leader, each
small firm in the industry behaves like a perfectly
competitive firm. Thus, although the dominant firm is a
price leader.
Price leadership by the dominant firm

12.  Airlines Industry
 Music Companies
 Petroleum & Gas Industries
 Transportation Service for long distance
trip
 Mobile telephony
 Internet service providers.
Some example of oligopolistic firm

13. In an oligopoly, the main player decides the price
which is followed by all the other firm in competition.
Thus, it includes the features of perfect
competition as well as partial monopoly market.
CONCLUSION