OLIGOPOLY

PRESENTED BYAMERESH SETHI

ARPITA GAIKWARDCHETAN CHAVHANDIMPLE RAMNANI

CONTENTS

• INTRODUCTION • FEATURES• KINKED DEMAND CURVE• CASE STUDY

INTRODUCTION

• This is a market situation where there are more than 2 producers of a product.

• When there are two producers, it is called duopoly, which is also an imperfect market situation and so a special case of oligopoly.

• The number of producers in oligopoly are lesser than that of perfect competition and monopolistic competition.

• Oligopoly is an actual market situation.

INTRODUCTION

• When you do a study of the detailed features we can relate to the real life market structures.

• It is an imperfect market with few sellers of similar or differentiated products.

• The few firms in oligopoly enjoy a high degree of market power.

• The market power depends on the number of sellers, barriers to entry and availability of substitutes.

INTRODUCTION

• Based on these criteria oligopoly enjoys substantial market power,in this market condition, a few firms dominate.

• Based on these criteria oligopoly enjoys substantial market power, in this market condition, a few firms dominate.

• Tyre manufacturers- Dunlop, firestone, dominate.

• Other examples of oligopoly are mobile service providers, breakfast cereal makers etc.

FEATURES OF OLIGOPOLY

1.Number of producers : There are very few producers in an oligopoly. The market is shared among a few producers. Example of homogeneous products - steel, coal, copper. The producers of these products compete on the basis of differences in product like- different packaging,colour, flavour.2. Huge Investments to Start Oligopoly Industries: Oligopoly markets are dominated by a few large producers and there are substantial barriers to the entry of new producers, though there is freedom of entry.

FEATURES OF OLIGOPOLY

3.Product Differentiation: The producers in an oligopoly market compete on the basis of product differentiation, which is a distinguishing feature of oligopoly.4. Advertising : In oligopoly market situation, the producers are forced to advertise their product . Aggressive advertising measures are undertaken with a view to capture the market share. In fact, the producers compete on these lines rather than resorting to price cutting to attract buyers.

FEATURES OF OLIGOPOLY

5. Group Behavior and interdependence :

6. The oligopolistic faces an indeterminate demand curve: There is a lot of interdependence among the oligopoly producers.

Producer Output Market share

Nokia 8000 40%

Samsung 6500 32.5%

L.G. 5500 27.5%

KINKED DEMAND CURVE

• The Kinked Demand Curve The demand curve under oligopoly is indeterminate.

• This is due to the interdependence of the oligopoly producers. Let us examine what happens if a producer under oligopoly reduces the price.

• In an oligopoly situation, an oligopolistic can expect three kinds of reactions if the price is lowered .

KINKED DEMAND CURVE

KINKED DEMAND CURVE

• Suppose Nokia reduces its price to Rs. 900. This may increase the sales, depending on the response of the oligopolists. If nobody responds, the oligopolist can go to point D.

• What happens point D? At this point Nokia will be able to sell more hand sets. What will happen to the other companies, Samsung and L.G.?

KINKED DEMAND CURVE

• But if the prices are reduced it leads to similar reactions from rival forms.

• Various factors have to be considered by a producer , when he goes ahead with the decisions to reduce price spend money on advertising his product or taking investment decisions.

• The firms are involved in strategy making and they have to be alert to the actions of the other competing firms.

CASE STUDY OF GE

CASE STUDY OF AVIATION INDUSTRY