This document defines and describes the key characteristics of an oligopoly market structure. An oligopoly is characterized by a market with a small number of large firms that dominate the industry. There are barriers to entry for new competitors. Firms in an oligopoly may engage in collusive pricing behaviors like price fixing, or they may follow a price leader. Pricing in oligopolies can also follow a "kinked demand curve" model where firms will match price cuts but not price increases from competitors.

1. M.MANJUNATH
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3.  IN the term ‘Oligopoly’ has been derived from
Greek words ‘ OLIGI’ means ‘few’ and
‘POLEIN’ means ‘seller’.
 A few dominant sellers sell ‘DIFFERENTIATED’
(OR) ‘HOMOGENOUS’ Products under
continuous Rivals action .
 Oligopoly looks Similar to other markets
forms as there can be many sellers ( like in
monopolistic competition) but a few very
lager sellers dominate the market.
What is Oligopoly ?

4.  Few Sellers:- Small no: of large firms compete..
 Entry Barriers :- No legal barriers ; only economic
in nature ..
 Huge Investment is requirements .
 Strong consumer loyalty for existing brands .
Features of ‘OLIGOPOLY’

5.  KINKED DEMAND CURVE .
 PRICING UNDER COLLUSION
 PRICING UNDER PRICE LEADERSHIP
3 Kinds of Pricing in ‘OLIGOPOLY MARKET’

6. KINKED DEMAND CURVE
PAUL SWEEZY
(1910-2004)

7.  If a firm decrease price , others will also do
the same so, The firm initially faces a highly
elastic demand curve.
 A price reduction will gave some gains to the
firm initially, but due to similar reaction by
rivals, this increase in demand will not give
sustained.
 If a firm increases it’s price, others will not
follow. Firm will lose large no:of its customers
to rivals due to substitution effect.

9. • Discontinuity in AR (D1KD2)
creates discontinuity in the
MR curve.
• At the kink (K), MR is constant
between point A and B.
• Producer will produce OQ,
whether it is operating on MC1
or MC2, since the profit
maximizing conditions are
being fulfilled at points S as
well as T.
• If MC fluctuates between A
and B, the firm will neither
change its output nor its
price.
• It will change its output and
price only if MC moves above
A or below B.
• D1K = highly elastic portion
of the demand curve when
rival firms do not react to
price rise
• KD2 = less elastic portion,
when rival firms react with a
price reduction.
D1
D2
K
A
B
MR
Quantity
O
MC1
MC2
P
Q
S
T
Price,
Revenue,
Cost

10.  Collusion is an agreement, usually secretive,
which occurs between two (or) more persons
to deceive , mislead , (or) defraud others of
their legal rights IT can involve “Wage fixing
between the colluding parties .

11.  Uniform Prices
 A penalty for Price discounts.
 Advance notice of price changes
 Information Exchange

14.  Leader fix the prices for entire industries.
 AS a result of price war – it emerged as winner
 Agreement among various firms with regard to
price – Formal or Informal .

15.  Price leadership of Dominant firm major
supply .
 Barometrice:- old experiment firm
 Aggressive :- Dominant firm to eliminate
rivals.