Macro Economics For downloading this contact- bikashkumar.bk100@gmail.com Prepared by Students of University of Rajshahi Tanvir Ahmed Md Mamun Islam Md Shahidul Islam Anjon Mojumder Sadia Afrin

1. •Oligopoly & Duopoly
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2. DUOPOLY
• What is a 'Duopoly‘?
• A duopoly is a situation in which two companies own
all or nearly all of the market for a given product or
service. A duopoly is the most basic form of oligopoly,
a market dominated by a small number of companies.
A duopoly can have the same impact on the market as
a monopoly if the two players collude on prices or
output. Collusion results in consumers paying higher
prices than they would in a truly competitive market
and is illegal under U.S. antitrust law.
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3. EXAMPLES OF DUOPOLY
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Boeing and Airbus have been called a duopoly for
their command of the large passenger airplane
market. Similarly, Amazon and Apple have been
called a duopoly for their dominance in the e-book
marketplace. While there are other companies in the
business of producing passenger planes and e-
books, the market share is highly concentrated
between the two businesses identified in the
duopoly.

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Edgeworth Model

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Chamberlin Model

6. DUOPOLY WITHOUT PRODUCT
DIFFERENTIATION
• Monopolist are supposed to be selling an identical
commodity.
• There must not be product differentiation.
• There may be a collusion between two producer.
• Consumers are indifferent between two product.
• They will be able to earn normal profit under perfect
competition.
• Lower price than competitive price.
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7. DUOPOLY WITH PRODUCT DIFFERENTIATION
When there is product differentiation, each
producer has his own clientele and goodwill.
There is no fear of immediate retaliatory
measures by the rivals ,if one producer changes
his price-output policy. There is less danger of
price war .there will be no agreement between
them. Since products are not similar, the firm
with better products can earn supernormal
profits.
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8. OLIGOPOLY

9. OLIGOPOLY
• Definition
The word oligopoly comes from Greek word oligos and
latin polies. Oligos means several and polies means
seller. So it can be said that several sellers market is
oligopoly. If a minimum firm produce and operate selling
in oligopoly market. There is a small number of seller
remains in the market.
“Competition among the few – WILLAM FALRAR.
“Oligopoly occur where there are a few sellers,, -
STONIER AND HOGUE.
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10. OLIGOPOLY
•Key characteristics
• Market dominated by a few large suppliers
• High cost entry into the market because of natural (economic) or
legal barriers to entry
• Examples
• Beverages (soft drinks)
• Music (CD’s)
• Tobacco
• Automobiles 10

11. EXAMPLES OF OLIGOPOLY
(AUTOMOBILES)
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12. ASSUMPTION OF OLIGOPOLY
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1. Few large firms
There are a few large firms that dominate the industry.
They can influence the price or quantity produced.
2. Firms interact with each other
Firms in oligopoly do not act independently of each
other.
They take into account the likely reactions of their
competitors.

13. OLIGOPOLY WITHOUT PRODUCT
DIFFERENTIATION
• The price which will be fixed in oligopoly without product
differentiation is thus in determination but is likely, in
general, to be lower, the larger number of producers,
until in the end there are enough for a perfectly
competitive equilibrium to be reached.
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14. OLIGOPOLY WITH PRODUCT
DIFFERENTIATION
• In case there is product differentiation, monopoly
agreements are even less likely. Since product are not
similar, any producer in oligopoly can raise or lower his
price without any fair of losing customers or immediate
reaction from his rivals.
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15. STABILITY OF PRICE UNDER
OLIGOPOLY.
• It is often noticed that price under oligopoly is stable. It
is neither much responsive to changes in demand nor to
changes in supply. For instance if demand increases,
no firm will venture to raise the price for fear that other
firms may not raise the price and it may lose the market.
Nor will it lower the price for the fear that the others
firms may also lower their price and deprive it of any
initial advantage.
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16. PRICE RIGIDITY/STICKY
PRICES
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Prices tend not to change when costs change in oligopoly.
Firms fear the reaction of their competitors.
If a firm increase price their competitor will not, so they will lose
customers & revenue.
If a firms decrease price so will competitors, so they will not gain
customers and lose revenue.

17. GAME THEORY
• A model of strategic moves and countermoves of rivals.
• Firms chooses strategies based on their assumptions
about competitors likely behaviour or response.
• Strategies could relate to pricing, advertising, product
range, customer groups etc.
• Game theory provides a framework or model to help
analyse this behaviour.
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18. OLIGOPOLY MODELS
KINKED DEMAND CURVE MODEL
•
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19. KINKED DEMAND CURVE MODEL
• Assumptions:
• All firms are independent (ie. no collusion)
• Rivals match price decreases and ignore price increases
• Implication of Kinked Demand Curve: Stable Price
• If a firm raises price, it will lose customers and sales to other
firms
• If it reduces price, other firms will match => a price war.
• Therefore, firms tend to maintain the same price.
• Substantial cost changes will have no effect on output and price
as long as MC shifts between C1 & C2. Another reason why
price is stable.
• Limitations
• It does not explain the determination of current price
• Sometimes prices rise substantially during inflation period,
which is contrary to the stable price conclusions of Oligopoly
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20. EFFECTS OF OLIGOPOLY
1. Small output and higher price.
2. Price exceed average cost.
3. Lower efficiency.
4. Selling cost.
5. Wider range of products.
6. Welfare effect.
7. Conclusion.
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21. PRICE LEADERSHIP UNDER
OLIGOPOLY (WITH DIAGRAM)
• In certain situations, organizations under oligopoly are
not involved in collusion.
• There are a number of oligopolistic organizations in the
market, but one of them is dominant organization,
which is called price leader.
• Price leadership takes place when there is only one
dominant organization in the industry, which sets the
price and others follow it.
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22. • Sometimes, an agreement may be developed among
organizations to assign a leadership role to one of them. The
dominant organization is treated as price leader because of
various reasons, such as large size of the organization, large
economies of scale, and advanced technology. According to
the agreement, there is no formal restriction that other
organizations should follow the price set by the leading
organization. However, sometimes agreement is formal in
nature.
• Price leadership is assumed to stabilize the price and
maintain price discipline.
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23. THERE ARE THREE TYPES OF PRICE
LEADERSHIP ARE EXPLAINED AS
FOLLOWS:
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A. Dominant Price Leadership: Refers to a type
of leadership in which only one organization dominates
the entire industry. Under dominant price leadership,
other organizations in the industry cannot influence
prices. The dominant organization uses its power of
monopoly to maximize its profits and other
organizations have to adjust their output with the set
price.

24. • B. Barometric Price Leadership: Refers to a leadership in
which one organization declares the change in prices at first and
assumes that other organizations would accept it. The
organization does not dominate others and need not to be the
leader in the industry. Such type of organization is known as
barometer.
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C. Aggressive Price Leadership: Implies a
leadership in which one organization establishes its
supremacy by threatening the organizations to follow its
leadership. In other words, a dominant organization
establishes leadership by following aggressive price policies
and forces other/organizations to follow the prices set by it.

25. PRICE-OUTPUT DETERMINATION
UNDER PRICE LEADERSHIP:
• Price leadership takes place when there is only one
dominant organization in the industry, which sets the
price and others follow it. Different economists have
developed different models for determining price and
output in price leadership.
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26. PRICE LEADERSHIP DIAGRAM.
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27. DIFFICULTIES OF PRICE
LEADERSHIP:-
1. One difficulties is that the price leader is not able to
assess correctly the reaction of his followers. The rival
firms may not follow its lead.
2. The rival firms may secretly charge lower prices when
they find that the price leader has fixed unduly higher
price.
3. The price leader has to face another difficulties when
it finds that the rival firms are indulging in non-price
competition to increase their sales even though they
charge the price set by the price leader.
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28. 4. When the price leader fixes a high price, there is an
inherent tendency on part of the rival producers to make
secret price-cuts and those adversely affect the sales of
the price leader.
5. Finally, the differences in cost of production also pose
a problem.
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29. COLLUSIVE OF OLIGOPOLY
• Q:What is collusive oligopoly?
• A:QUICK ANSWER
• A collusive oligopoly is an economic structure
consisting of only a few producers, who typically form
secret cooperative policies that aim to dominate a
certain market, influence product-pricing and dictate
market shares among competing corporations. The
Organization of Petroleum Exporting Countries, commonly
known as OPEC, is an example of a collusive oligopoly,
where the production and pricing of oil is controlled by its
member nations.
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31. EVILS OF OLIGOPOLY
There is generally a continuous price war which finally results in
disastrously low level of prices. When some of the producers find
themselves at an advantage. they will push up the prices
cracking! an anomalous and discriminatory pattern of prices
charged from the consumers. Such cut-throat competition in
industries characterized by heavy overheads and
increasing costs proves ruinous to all producers. Realizing this.
they may tacitly or explicitly enter into price agreements: which
may result in the exploitation of the consumers. A tendency to
earn a fair return on past investments, resulting in the
excessive plant capacity. is detrimental to consumer’s
welfare, because they face scarce output and high prices.
Hence, cut-throat competition may be, essential to
liquidate excess capacity through losses or sub-normal profits.31

32. • Unlike perfect competition. under which price falls when
demand decreases, output remaining the same. in
oligopoly. prices stay firm, and only output varies
resulting in idle plants. This I~ had for society and had
for the consumers. Government regulation is
necessary (al to pull down harriers to the century 10 new
firms. (h) frown on collision, to maintain likes and restrict
supply, and (c) to break big or to prevent them from
becoming higher.
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