This document discusses pricing under oligopoly and provides classifications and models of oligopoly. It defines oligopoly as a market with a few sellers dealing in homogeneous or differentiated products. Oligopoly can be classified based on the nature of products, entry of firms, price leadership, agreements between firms, and coordination between firms. Models of non-collusive oligopoly discussed include Cournot's, Bertrand's, Edgeworth's, and Stackelberg's models which make different assumptions around firms' outputs and pricing decisions.

1. Pricing Under Oligopoly
Prepared by
Dr. K.V.Sasidhar

2. Pricing Under Oligopoly
• Oligopoly Meaning:
• Oligopoly has been derived from two Words
oligi and pollien.
• ‘Oligi’ means a ‘few’ and ‘Pollien’ means
‘sellers’.

3. Oligopoly
Definition
Oligopoly is defined as a market
situation in which there are a few
sellers or producers dealing in either
the homogeneous or differentiated
products.

4. Classification of Oligopoly
Oligopoly market can classified on following bases.
1) Nature of product:
on the basis of nature of products, Oligopoly is Classified as
Pure and differentiated oligopoly.
a) Pure oligopoly is one in case of which the product produced
by the competing firms in the market is identical or
homogeneous.
a) Differentiated oligopoly is supposed to exist in the market,
when the firms in the market produce and sell the non-homogeneous.

5. Classification of Oligopoly
2. Entry of firms: On the basis of freedom of entry
Oligopoly Market classified as ‘open’ and ‘Closed’
oligopoly.
a) Open oligopoly: when the new firms are allowed
to enter in to the market. It is called open
oligopoly.
b) Closed oligopoly: when the new firms are not
allowed to enter in to the market. It is called
open oligopoly.

6. Classification of Oligopoly
3. Price leadership:
Based on Price leadership the oligopoly can be
classified as ‘Partial’ and ‘Full’ oligopoly.
a) Partial oligopoly: when a large firm in the market
is recognized as price leader, the other smaller
firms in the market follow the price fixed by the
leader firm.
b) Full Oligopoly: Where there is no leading firm to
determine the price of a product in the market.
The firm may be engaged in price competition in
the case of full oligopoly.

7. Classification of Oligopoly
4) Agreement or Collusion:
The oligopoly market can be classified as ‘Collusive’ or
‘Non collusive’ on the basis of agreement or collusion
among firms in the market.
a) Collusive Oligopoly: When different firms in the
oligopoly market have some informal or formal
agreement about price, output, division of market,
profit sharing etc.
b) Non Collusive Oligopoly: When there is no
agreement or collusion among the firms.

8. Classification of Oligopoly
5) Degree of Co-ordination: On the basis of degree
of co-ordination the oligopoly market can be of the
types of ‘Organized’ and ‘Syndicated’ oligopoly.
a) Organized oligopoly: When the different firms
in the market avoid price competition by
organizing themselves into a central association
for fixing price, output quotas etc.
b) Syndicated oligopoly: All the firms in the market
crate a syndicate or cartel which is a common
selling organization for the sale of output
turned out by all firms.

9. Characteristics of Oligopoly
1. Few Sellers
2. Control over supply
3. Inter-dependence of firms
4. Conflicting attitudes of firms.
5. Lack of uniformity of size of firm
6. Group behavior
7. Advertising and selling costs
8. Price rigidity
9. Intense Competition
10.Indeterminateness of demand curve

10. Non- Collusive Oligopoly Models
1) Augustin Cournot’s Model
2) Bertrand’s Model
3) Edgeworth’s Model
4) Stackelberg,s Model

11. Augustin Cournot’s Model
Oligopoly was made by the French economist
Augustin Cournot in 1839. is model rests upon
the following main assumptions:
1. There are Two firms in the market, A and B
2. Each Firm owns the spring of mineral water
which is identical.
3. The cost of production is zero
4. Each firm is faced with a linear, negatively
sloping market demand curve.

12. Assumptions Continued…..
5. The productive capacity of each firm is unlimited.
6. Each firm considers itself to be independent in
determining its price or output. It means the mutual
interdependence is ignored.
7. Each firm assumes that the supply of rival firm will
remain unchanged.
Given the Set of assumptions, when ultimately long run
equilibrium determined, each firm will share the market
equally. Price will be zero because of zero cost of
production and the long run equilibrium under perfect
competition.
The model is explained through Fig.

16. Thank You

17. Bertrand’s oligopoly Model
The oligopoly (duopoly) model developed by Joseph
Bertram in 1883 was a modification upon Cournot’s
duopoly solution.
Assumptions:
1. There are Two firms in the market, A and B
2. Each Firm owns the spring of mineral water which
is identical.
3. The cost of production is zero
4. Each firm have unlimited production capacity.

18. Assumptions:
5. Each firm considers itself to be independent
in making the price – output decision. In other
words, the mutual interdependence is ignored
by them.
6. The most significant assumption in this
model, on account of which it departs from
Cournot’s solution is that each fierm belives
that the price of rival firm remains constant.

21. Edgeworth’s model
*In the field of Classical oligopoly(duopoly)
analysis was made by F. Y. Edgeworth in 1857.
*This model made a significant departure from
the duopoly models given by Cournot and
Bertrand.
The Change in this model is Edgeworth’s
assumption that the productive capacity of each
firm in the duopoly market is limited.

22. Assumptions of the Model
1) There are two firms, ‘A’ and ‘B’
2) The products of the two firms are homogeneous
3) Both the firms have equal per unit cost.
4) The productive capacity of each firm is limited.
5) Both the firms sell their maximum possible
output at the competitive price, where price
becomes equal to average cost.

23. Assumptions of the Model
6. Each firm considers itself to be independent in
making the price-output decision. It means the
mutual interdependence is ignored by each of
the firm.
7. Each firm assumes that the price of the rival
will remain unchanged.

25. Stackelberg’s Duopoly Model
This is an extension of Cournot’s Model
The essence of Stackelberg’s model is the
problem of leadership and followership.
He assumed that the rival acts as his follower
and tries to maximizes his profits, given the
output decided by the leader.
Stackelberg pointed out that each duopolist
acting as a leader or follower would attempt to
maximize his profits.

26. Stackelberg’s Duopoly Model