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Introduction
• The term oligopoly is derived from two
Greek words.
• “Oligi” which means few “Polien” means to
sell..
• It is a competition between two big sellers each
one of them selling either homogeneous or
differentiatedproducts.
The nature of oligopoly
“A market form where there are only a few
firms in the industry but there are many
buyers”
•Oligopoly is a particular market which is
controlled by a small group of firms.
•There is a high degree of interdependence
between firms.
•In oligopoly there are at least two firms
Features of oligopolY
• Large number of buyers but only few
sellers
• Product may be differentiated or
standardised
• Buyers are small relative to market but
sellers are large.
• Firms have market power derived from
barriers to entry.
• Profit maximization conditions.
•Ability to set price.
• Advertising.
Oligopolistic
Competition.
It is a situation where oligopoly
describes a market dominated by few
large firms ,.
examples:
Soft drinks
Cars
Music
Classification of oligopoly .
On the basis of products ,they
are classified into pure oligopoly
and differentiated oligopoly.
On the basis of possibility of
entry of firms,oligopolies may be
classified into oligopolies with
free entry or oligopolies with
Based on price leadership:
The oligopoly can be classified as “partial” and
“full” oligopoly.
a)Partial oligopoly:when a large firm in market
is recognised as price leader , the other small
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 case of full oligopoly.
Price leadership model..
Price leadership model is a feature of oligopolistic
situation,where one firms assumes the role of leader
and fixes the price of a product.
Price leadership can be seen when most of all firms
in the industry decide to sell their product at a price
fixed by one among them.
The leader may be the biggest firm in the industry or
it may be a firm with lowest cost of production.
Independent pricing by each firm is rarely seen in
the oligopolistic situation.
Types of price leadership model.
price leadership of the dominant firms.
Barometric price leadership
Aggressive price leadership.
Features of price leadership
model:
o The firm has a considerable , share in
the total market supply.
oThe firm is a reputed one for fixing a
suitable price.
oThe firm has initiative in taking timely
action after considering various factors.
oThe firm has a relative cost advantage
which given it a supremacy among the
various firms in the industry.
OLIGOPOLY –KINKED DEMAND CURVE MODEL:
The most popular model of oligopoly is
the kinked demand curve model . This model
is an explanation for price rigidity.
The kinked demand curve helps to explain
why price rigidity will exist in oligopoly even
without collusion among firms.
The demand curve as ordinarily
defined is inapplicable to oligopoly . Each firm
in oligopoly estimates the amount it can sell
at various prices making arrival for the
probable reactions of its rivals….
‘
’
’
’
’
’
Y
A
P
B
O M X
The demand curve facing an oligopolist has a kink at the
levels of the prevailing market..
The prevailing market price is MP . If the
Oligopoly raises his price above MP, then there
Will be substantial reduction in his sales.
When a firm raises the price, its rivals do not
Raises their prices hence there will be a
Substantial reduction in the sales of the firm
When it raises its price . Hence AP of demand
Curve is more elastic. If the oligopolist reduces the price
below MO in order to increase his sales his rivals retaliate.
Hence the firm cannot increase its sales by price reduction .
Thus the segment PB of the demand curve is inelastic.
SWEEZY’S VERSION OF KINKED DEMAND CURVE:
‘
‘
‘
‘
‘
‘
Y
A
P
MC
B
O X
MR
Sweezy’s version of kinked demand curve states that
oligopoly price is what it is . It does not explain and bring
out the force of equilibrium .It does explains stability of
oligopoly price and not the determination of oligopoly
price.
The kinked demand curve shows
Oligopoly interdependence firm.
In the diagram the marginal
Revenue is positive in the elastic
Strength of demand curve AP.
it is negative in the inelastic
Position
The stability in price and output is explained bby kinked
demand curve hypothesis.
THE KINKED DEMAND CURVE MODEL
OF OLIGOPOLY ASSUMES THAT:
•Response to a price increase is less , than
response to a price decrease.
•Elasticity of demand is constant regardless
of whether price increases or decreases.
•Elasticity of demand is perfectly elastic if
price increases and perfectly inelastic if
price decreases.
CRITICISM/DRAWBACK:
THE KINKED DEMAND CURVE MODEL HAS
BEEN CRITICISED ON SEVERAL
ACCOUNTS.
•THE MODEL DOES NOT EXPLAIN HOW
THE FIRM ARRIVE AT THE KINK IN THE
FIRST PLACE.
•THERE ARE ALSO SOME OTHER VALID
EXPLANATIONS
PRICE RIGIDITY SUCH AS,NATIONALLY
ADVERTISED PRICES ,CATALOUGED
Conclusion:
In conclusion we can opine that
mutual interdependence among firms
and price rigidity are two typical
features in oligopoly market .
Although the firms are rival they are
mutually interdependent . Hence
price competition is significant in
oligopoly market.
Presentation of economics on oligopoly

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Presentation of economics on oligopoly

  • 1.
  • 2.
  • 3. Introduction • The term oligopoly is derived from two Greek words. • “Oligi” which means few “Polien” means to sell.. • It is a competition between two big sellers each one of them selling either homogeneous or differentiatedproducts.
  • 4. The nature of oligopoly “A market form where there are only a few firms in the industry but there are many buyers” •Oligopoly is a particular market which is controlled by a small group of firms. •There is a high degree of interdependence between firms. •In oligopoly there are at least two firms
  • 5. Features of oligopolY • Large number of buyers but only few sellers • Product may be differentiated or standardised • Buyers are small relative to market but sellers are large. • Firms have market power derived from barriers to entry. • Profit maximization conditions. •Ability to set price. • Advertising.
  • 6. Oligopolistic Competition. It is a situation where oligopoly describes a market dominated by few large firms ,. examples: Soft drinks Cars Music
  • 7. Classification of oligopoly . On the basis of products ,they are classified into pure oligopoly and differentiated oligopoly. On the basis of possibility of entry of firms,oligopolies may be classified into oligopolies with free entry or oligopolies with
  • 8. Based on price leadership: The oligopoly can be classified as “partial” and “full” oligopoly. a)Partial oligopoly:when a large firm in market is recognised as price leader , the other small 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 case of full oligopoly.
  • 9. Price leadership model.. Price leadership model is a feature of oligopolistic situation,where one firms assumes the role of leader and fixes the price of a product. Price leadership can be seen when most of all firms in the industry decide to sell their product at a price fixed by one among them. The leader may be the biggest firm in the industry or it may be a firm with lowest cost of production. Independent pricing by each firm is rarely seen in the oligopolistic situation.
  • 10. Types of price leadership model. price leadership of the dominant firms. Barometric price leadership Aggressive price leadership.
  • 11. Features of price leadership model: o The firm has a considerable , share in the total market supply. oThe firm is a reputed one for fixing a suitable price. oThe firm has initiative in taking timely action after considering various factors. oThe firm has a relative cost advantage which given it a supremacy among the various firms in the industry.
  • 12. OLIGOPOLY –KINKED DEMAND CURVE MODEL: The most popular model of oligopoly is the kinked demand curve model . This model is an explanation for price rigidity. The kinked demand curve helps to explain why price rigidity will exist in oligopoly even without collusion among firms. The demand curve as ordinarily defined is inapplicable to oligopoly . Each firm in oligopoly estimates the amount it can sell at various prices making arrival for the probable reactions of its rivals….
  • 13. ‘ ’ ’ ’ ’ ’ Y A P B O M X The demand curve facing an oligopolist has a kink at the levels of the prevailing market.. The prevailing market price is MP . If the Oligopoly raises his price above MP, then there Will be substantial reduction in his sales. When a firm raises the price, its rivals do not Raises their prices hence there will be a Substantial reduction in the sales of the firm When it raises its price . Hence AP of demand Curve is more elastic. If the oligopolist reduces the price below MO in order to increase his sales his rivals retaliate. Hence the firm cannot increase its sales by price reduction . Thus the segment PB of the demand curve is inelastic.
  • 14. SWEEZY’S VERSION OF KINKED DEMAND CURVE: ‘ ‘ ‘ ‘ ‘ ‘ Y A P MC B O X MR Sweezy’s version of kinked demand curve states that oligopoly price is what it is . It does not explain and bring out the force of equilibrium .It does explains stability of oligopoly price and not the determination of oligopoly price. The kinked demand curve shows Oligopoly interdependence firm. In the diagram the marginal Revenue is positive in the elastic Strength of demand curve AP. it is negative in the inelastic Position The stability in price and output is explained bby kinked demand curve hypothesis.
  • 15. THE KINKED DEMAND CURVE MODEL OF OLIGOPOLY ASSUMES THAT: •Response to a price increase is less , than response to a price decrease. •Elasticity of demand is constant regardless of whether price increases or decreases. •Elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases.
  • 16. CRITICISM/DRAWBACK: THE KINKED DEMAND CURVE MODEL HAS BEEN CRITICISED ON SEVERAL ACCOUNTS. •THE MODEL DOES NOT EXPLAIN HOW THE FIRM ARRIVE AT THE KINK IN THE FIRST PLACE. •THERE ARE ALSO SOME OTHER VALID EXPLANATIONS PRICE RIGIDITY SUCH AS,NATIONALLY ADVERTISED PRICES ,CATALOUGED
  • 17. Conclusion: In conclusion we can opine that mutual interdependence among firms and price rigidity are two typical features in oligopoly market . Although the firms are rival they are mutually interdependent . Hence price competition is significant in oligopoly market.