Oligopoly

Oligopoly Definition of Oligopoly:

Oligopoly is that form of imperfect competition where there are a few firms in the market, producing either a homogeneous product or producing products which are close but not perfect substitute of each other) Oligopoly is a combination of two words- oligo + poly. Oligo means few and poly means seller Oligopoly differ from monopoly where there is only one seller and from perfect and monopolistic competition where there are many sellers. 

Oligopoly is the situation in which a firm bases its market policy in part on the expected behaviour of a few close rivals. Characteristics of Oligopoly The following are the characteristics of oligopoly 

V1. Few Seller:

There are few sellers in market and every seller is in the position to affect the price 

v2. Standardised Product: 

The product of different seller may be homogeneous or differentiated. 

3. Difficult Entry and Exit : 

Under oligopoly it is difficult for a new firm to enter the market 

4.  of Business Decision :

 The nature and degree of competition among the oligopolist makes them interdependent in respect of decision making The firms in the oligopoly industry are aware of their interdependence and always consider their rivals reaction when selecting prices, advertising budget and other business activity etc . 

5. Sales Promotion and Advertisement Activity : All firms spend a large amount on advertisement and sales promotion activities to i ncrease the sale of their product.

 6. Lack of Uniformity in Size of Firms:

 The firms are not uniform in the sze. Classification of Oligopoly Oligopoly can be classified under different bases 

V1. On the basis of Product Differentiation: Oligopoly is perfect if the product produced by the competing firms is homogeneous or identical On the other hand oligopoly is imperfect or differentiated when the competing firms produce product which are close but not perfect substitute. /

2. On basis of Entry of Firm:

 An open oligopoly refers to market situation where the new firms are free to enter. pnpósd jo 3. Closed Oligopoly : That market situation where the new firms are not allowed free entry into the market. 

4. On the basis of Agreement: 

ta) Collusive Oligopoly : 

It refers to that market situation where the firm instead of competing comblindtogether to fix the price and output of industry)

 (b) Non-collusive Oligopoly :

 This oligopoly implies lack of any understanding or agreement among the firm On the Basis of Price Leadership: 

5. (a) Partial 0ligopoly: 

It refers to that market situation where the industry is dominated by one larger firm which is looked upon as the price leaderUhe rest of the smaller firm looks to the price leader for lead in fixing the price of their product)

b) Full Oligopoly: 

On the contrary is that situation where price leadership is conspicuour by its absence. Price Determination Under Oligopoly Price determination takes different form under oligopoly:

 1. Independent Pricing: 

If there is product differentlation cach firm can enjoy its own price policy. But if all firms under oligopoly are producing homogeneous product, then independent pricing identical price for the product. But in practice independent price setting cannot exist for long In oligopoly,

 2. Collusive Price: 

In simple words collusive means to play together. In oligopoly when competitors cooperate each other in pricing their products they are sald to engage in collusion. There are two main types of collusion-cartels and price leadership. Cartel imply direct agreement among competing oligopolist with the aim of reducing uncertainty. The main of the cartel is the mazimisation of total profits.