An oligopoly is a market structure with few sellers who offer similar or differentiated products. There are two main types - pure oligopoly where products are homogeneous, and differentiated oligopoly where products vary. Key features include interdependent decision-making among sellers due to their awareness of how others will react. The kinked demand curve model shows how oligopolists may keep prices rigid in response to costs shifts to avoid starting a price war. Cartels are an extreme form of collusive oligopoly where firms jointly set price and output through agreements to maximize their total profits.

1. Oligopoly Market
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2. Price and Output Determination Under Oligopoly
 Oligopoly is defined as the market structure in which
there are a few sellers selling a homogeneous or
differentiated products.
 Selling homogeneous products – pure oligopoly.
Example : industries producing cement, steel, petrol,
cooking gas, chemicals, aluminium and sugar.
 Selling differentiated products – differentiated oligopoly.
Examples: Automobiles, TV sets, soft drinks, computers,
cigarettes etc.
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3. FEATURES
 Few Sellers.
 Ability to set price.
 Homogeneous or distinctive product.
 Blockaded entry or exit.
 Interdependence.
 High cross elasticities.
 Constant struggle.
 Lack of uniformity.
 Lack of certainty.
 Price rigidity.

4. Kinked Demand Curve
The kinked demand curve or the average revenue curve is made of
Relatively elastic demand curve
Relatively inelastic demand curve
At given price P, there is a kink at point K on the demand curve DD. DK is the
elastic segment and KD is the inelastic segment of the curve. Here, the kink implies
an abrupt change in the slope of the demand curve. Before the kink the demand
curve is flatter, after the kink it becomes steeper.
The kink leads to indeterminateness of the course of demand for the product of the
seller. Raising the price would contract sales as demand tends to be elastic at this
stage. Lowering the price would imply an immediate retaliation from the rivals on
account of close interdependence of price output movement in oligopolistic market.

5. The Kinked Demand Curve
y
Elastic
D K
Price
Inelastic
D
0 x
Quantity

6. If costs shift up slightly, but MC still intersects
MR in the vertical segment, there will be no
change in price.
y
MC’ This price rigidity
MC is seen in real world
oligopoly markets.
Price
D
0 x
MR
Quantity

7. y
Price
o x
Quantity

8. CARTELS
Cartel is a type of collusive oligopoly, firms jointly
fix a price and output policy through agreements.
 Joint Profit Maximization Cartel : In this the firms producing
homogeneous products surrender their price and output decisions to a
centralized cartel board in the industry
 The individual firms surrender their price & output decisions to this
board . Board determines output quota for the firms, the price to be
charged and distribution of industry profits.
 The central board thus acts as a single monopolist to maximise the
joint profits of the oligopolistic industry.
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9. Assumptions:
 Only two firms A & B are assumed in the oligopolistic
industry.
 Each firm is selling homogeneous products.
 Number of buyers is large
 The market demand curve is given and is known to the
cartel.
 Cost curves are different but known to the cartel
 Price of the product determines the policy of the cartel
 Cartel aims at the joint profit maximization.
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