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PRICE DETERMINATION UNDERPRICE DETERMINATION UNDER

OLIGOPOLY MARKETOLIGOPOLY MARKET

Oligopoly is market situation with onlyOligopoly is market situation with onlya few larger sellers.oligopoly is marketa few larger sellers.oligopoly is marketsituation where a few firm sell eithersituation where a few firm sell either

homogenous or differentiation.homogenous or differentiation.

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Oligopoly

Oligopoly Market Characteristics Few sellers and many buyers

Homogenous and differentiated product

Mutual interdependence

Advertising

Element of monopoly Existence of price rigidity

Keen competition

Uncertainty

Existence of non-profit motives

Some barriers in entry

Examples of Oligopoly National markets for aluminum, cigarettes, electrical equipment etc.

Local retail markets for gasoline, food, professional services, etc.

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Few larger seller

In case of oligopoly few larger sellersdominated the whole market. It means the

number of seller is very small but they

have got more market share.

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Homogenous or differentiated

productif firm are produced homogenous product

this is called perfect oligopoly.if a firm

produced differentiated product then it willcalled imperfect oligopoly.

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Mutual interdependence

It mean the a firms are effected by the eachother price and output decisions.in case of

oligopoly cross elasticity is very high

because product are close substitution.

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Advertisement

An oligoploy firm has incur much

expenditure on advertisement.under

oligopoly market advertisement can

become a life of product.

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ELEMENT OF MONOPOLY

The existence of product differentiated createbrand loyalty on the part of customer.every firmhas monopoly in their brand.

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Existence of price rigidity

The firm would not like to change the price.iffirm tries to reduce the price his rival will also

reduce the price and on the other hand if a

firm will rise the price his rival will not rise the

price as a result a firm will reduce their

customers.

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Keen competition

Under oligopoly number of firm is so small

that any move by one firm immediately

affect the rival of other firms.

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UncertaintyUncertainty

In oligopoly due to interdependence of firmIn oligopoly due to interdependence of firm

on each other no certain prediction abouton each other no certain prediction about

the behavior of other firm can be make.the behavior of other firm can be make.

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Existence of non profit motivesExistence of non profit motives

A firm under oligopoly not always have profitA firm under oligopoly not always have profit

motives it can keep other motives as salesmotives it can keep other motives as sales

maximiozation,profit maximization, riskmaximiozation,profit maximization, risk

maximization, output maximization ect.maximization, output maximization ect.

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Some barriers to entrySome barriers to entry

In case of oligopoly firm there is some entryIn case of oligopoly firm there is some entry

barriers e.g. economics of scale, patent right,barriers e.g. economics of scale, patent right,

control over important inputs etc.control over important inputs etc.

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Classification of oligopoly marketClassification of oligopoly market

Perfect and imperfectPerfect and imperfect

Open and closeOpen and close

Partial and full oligopolyPartial and full oligopolyCollusive and nonCollusive and non--collusivecollusive

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Perfect and imperfect oligopolyPerfect and imperfect oligopoly

Perfect oligopoly is situation in which allPerfect oligopoly is situation in which all

products are homogeneous.products are homogeneous.

Imperfect oligopoly is in which product areImperfect oligopoly is in which product aredifferentiated but close substitutes.differentiated but close substitutes.

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Partial or full oligopolyPartial or full oligopoly

Partial are those in which there onePartial are those in which there one

dominated firm.dominated firm.

Full oligopoly are those in which there isFull oligopoly are those in which there isno dominated firm.no dominated firm.

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Collusive and nonCollusive and non--collusivecollusive

Collusive oligopoly is that oligopoly inCollusive oligopoly is that oligopoly in

which the firm cooperate with each otherwhich the firm cooperate with each other

in determining the price.in determining the price.

NonNon--collusive is that oligopoly in whichcollusive is that oligopoly in which

firm act as independently.firm act as independently.

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Thank YouThank You