Oligopoly refers to a market situation in which there are few firms selling homogeneous or differentiated products. For example, the car market is considered to be an oligopoly.
In this post, we will learn about the oligopoly market in an easy way. Let’s learn.
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Features of Oligopoly
1. Few firms and large number of buyers
Under oligopoly, there are few large firms each producing a significant portion of total output.
For example, the market for automobiles, cement industries in India are oligopoly.
Firms under this are mutually dependent because a few large firms dominate the market. Interdependence means that the actions of 1 firm depend on the action of the other firms.
3. Non-price competition
Firms try to avoid price competition, otherwise, there will be price wars. Rather than slashing prices of the products. They use other methods like advertising, customer care, etc. to stay in the market. So, they follow the policy of price rigidity.
4. Barriers to entry of the new firms
The cause behind the existence of few firms under oligopoly is the barrier, which restricts the entry of new firms into the industry. For example, the patent holder may give a license to only a few firms.
5. Selling Cost
Due to cut-throat competition and interdependence among the firms, various sale promotion techniques are used by firms in oligopoly spends on advertising and other promotional schemes.
6. Nature of the product
If firms produce a homogeneous product, the industry is called a pure or perfect oligopoly. For example, cement, aluminum industry, etc.
If the firm produces a differentiated product the industry is called a differentiated or imperfect oligopoly. For example, the automobile industries.
7. Indeterminate demand curve
There is no certainty in the behavior pattern of the producer as firms are mutually dependent. So, the demand curve faced by an oligopolist is indeterminate. The oligopolist faces a kinked shaped demand curve.
You can read the related concepts:
- Perfect Competition
- Monopoly Market
- Monopolistic Market
- The price elasticity of supply
- The supply curve
- What is the production function?
- Terms related to production concept
- Law of diminishing returns to a factor
- Total cost, Total variable cost, and total fixed cost
- The relation between TC, TVC, and TFC
- Average total cost
- The demand curve
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