This document discusses oligopoly, which is a market structure dominated by a few large firms. It begins by defining oligopoly and noting its key characteristics, including few sellers, barriers to entry, and mutual dependence between firms. It then outlines six types of oligopoly: pure, differentiated, collusive, non-collusive, open, and closed. Examples are provided to illustrate each type. Common barriers to entry in oligopolistic markets are also defined. Several real-world examples of oligopolistic industries are explained, such as the smart phone, computer, music, auto, and soft drink industries. Models of oligopoly behavior are briefly introduced, focusing on the kinked demand model and price leadership models

2. Presented by Group 2:
Zuha Handoo
Suhail Qadir
Foziya Khanday
Mariya Qurat-Ul-Ain
Aqib Hussain
Mujeeb Tariq
Salman Farooq Dar

3. INTRODUCTION

4. Pure
(perfect)
competition
Monopolistic
competition
Oligopoly Monopoly
In decreasing order of level of competition

5. Oligopoly :
 Derived from the Greek word, “oligo’(few) “polo”(to
sell).
 Market dominated by a few large firms, i.e.;
Competition amongst the few.
• Yes• Same-
Different
• Competitors• Difficult
Ease of
entry
Competition
Control over
price
Products

6. Characteristics of Oligopoly:
 Only “few” sellers.
 Homogeneous/Differentiated products.
 Imperfect knowledge.
 High barriers to entry.
 Mutual dependence.
 Non price competition.

7. Types of Oligopoly:
1. Pure or Perfect Oligopoly
2. Imperfect or Differentiated Oligopoly
3. Collusive Oligopoly
4. Non-Collusive Oligopoly
5. Open Oligopoly
6. Closed Oligopoly

8. 1. Pure or Perfect Oligopoly:
If the firms produce homogeneous products,
then it is called pure or perfect oligopoly.
Though, it is rare to find pure oligopoly
situation, yet, cement, steel, aluminum and
chemicals producing industries approach pure
oligopoly.

9. 2. Imperfect or Differentiated Oligopoly:
If the firms produce differentiated products, then it
is called differentiated or imperfect oligopoly.For
example, passenger cars, cigarettes or soft drinks.
The goods produced by different firms have their
own distinguishing characteristics, yet all of them
are close substitutes of each other.

10. 3. Collusive Oligopoly:
If the firms cooperate with each other in
determining price or output or both, it is
called collusive oligopoly or cooperative
oligopoly.In other words, the firms in a
collusive oligopoly combines to avoid the
competition among themselves regarding the
price and output of the industry. For example,
OPEC(Organization for petroleum exporting
countries) serves the example for collusive
oligopolies.

11. 4. Non-collusive Oligopoly:
If firms in an oligopoly market compete with
each other, it is called a non-collusive or non-
cooperative oligopoly.The firms in non-
collusive oligopoly tries to gain maximum
share of the market by developing policies and
strategies to outperform or beat their rivals.

12. 5.Open oligopoly:
An open oligopoly provides full freedom to
new firms to enter into industry.In the
situation of open oligopoly there is no
restriction of any kind for the desiring firm to
enter into the market.

13. 6.Closed oligopoly:
A closed oligopoly refers to that market
structure where only few firms control the
market and new firms are not allowed to enter
industry. Barriers are set to prevent the entry
of new firms into the industry. For example,
patents,licences,requirement of large
capital,control over crucial raw materials are
some of the reasons which prevent new firms
from entering into industry.

14. Barriers to entry:

15. 1. Access to suppliers & distributors
2. Cost of entering a market
3. Legal requirements
4. Legal restriction
5. Fear of retaliation

16. Examples of oligopoly:

17. 1. Smart Phone Operating Systems:
The smart phone market is similarly
dominated by a handful of companies, the
most powerful two being Google Android
and Apple IOS. Those companies have deep
relationships with the handset providers and
are able to have their system pre – installed
on each phone.

19. 2.Computer Operating Systems:
New high tech markets can become
oligopolies when the companies provide
unique products that are supported by an
ecosystem of supporting technology.
Computer operating systems are dominated
by Microsoft’s Windows, Apple’s Mac OS and
the open source Linux operating systems.
These three systems capture close to 100 % of
the computer operating system market due
to their established positions. According to
the StatOwl website.

21. 3.Music Industry:
The music entertainment industry is
dominated by four music companies that
control 80% of the market and these are
universal Music Group, Sony Music
entertainment, Warner Music Group.

22. 35.10%
22.80%
21.10%
21%
universal
sony
warner
others

23. 4.Auto industry:
Auto industry is another example of an oligopoly,
which is dominated by few firms and these firms
are Hero Motor Corp., TVS and Honda.
HERO: 40% Market Share
Honda: 25% Market Share
TVS: 14% Market Share

24. 40%
14%
25%
21%
HERO
TVS
HONDA
OTHERS

25. 5.Oligopoly in soft drink industry:
Two firms control 74 % of soft drink sales:
o 42.8% coca-cola’s 25 brands and 139 varieties.
o 31.1% Pepsi’s 18 brands and 163 varieties.
Coca-cola and Pepsi are in an oligopoly market.
They are mutually and strategically
interdependent, as a decision made by one firm
invariably affects the other. They are selling the
homogeneous product so they can control over
price.

26. 42.80%
31.10%
26.10%
Series 1
coca-cola
Pepsi
others

27. Some other common examples:
Airlines
Supermarkets
Steel Industry
Health Insurance, etc………

28. Models of oligopoly:

29. Although there are many models which
explain oligopolistic market structure, but we
will be discussing two over here.
These are:
1: Kinked model
2: Price Leadership model

30. Kinked Model:
A bend in a standard demand curve that is a
result of competitors decreasing their prices
to match each others, but not raising them
to achieve the same effect. The thought is
that once a business has reduced their price
to a certain level any fluctuation that raises
the price will cause the firm to lose
customers.

32. Price Leadership model:
 Firms follow the price leadership of a
particular firm.
 Tacit collusion i.e. unwritten and unspoken
agreement.

33. Types of Price Leadership Model:
 Price leadership by Low-Cost Firm.
 Price leadership by Dominant Firm.
 The Barometric price leadership.

34. Assumptions
 Small number of firms.
 Entry is restricted.
 Homogeneous product.
 Interdependence.
 Firms have similar cost curves.

35. Low-Cost Price Leadership
 Firm with the lowest cost of production sets
the price and others follow.
 Only the leader firm optimizes the profit.

36. Price Leadership by Dominant
Firm
 Dominant firm sets the price
 Influence of dominant firm on market is very high.
 Prices set by the dominant firm maybe pushed.

37. Barometric Price Leadership
 Price is generally set by a large and
experienced firm with good knowledge and
proven predictability.
 Leader consistently monitors the market.
 Leader considers common interest of all
firms.
 Forms due to the dissatisfaction of firms
with the level of competition.

38. Thank You!