If a small number of sizeable firms constitute an industry and one of these firms starts advertising campaign on a big scale or designs a new model of the product which immediately captures the market, it will surely provoke countermoves on the part of rival firms in the industry.
The firms under oligopoly are interdependent as they are in a group. But such expenditure is the life-blood of an oligopolistic firm. Another feature of oligopoly market is the lack of uniformity in the size of firms.
In other words, the Oligopoly market structure lies between the pure monopoly and monopolistic competition, where few sellers dominate the market and have control over the price of the product. Pharmaceutical Industry The pharmaceutical industry is becoming an oligopoly due to the staggering costs of developing and marketing new drugs and because of patents that protect new products from competitors.
This characteristic is the direct result of the interdependence characteristic of an oligopolistic firm. The net result will be price -finite or price-rigidity in the oligopolistic condition. Since under oligopoly, there are a few sellers, a move by one seller immediately affects the rivals.
Under oligopoly a firm can expect at least three different reactions of the other sellers when it lowers its prices.
Few firms dominating the market enjoys a considerable control over the price of the product.
Oligopolistic market the joint profit maximising achieves greater economic profits for all the firms, there is an incentive for an individual firm to "cheat" by expanding output to gain greater market share and profit.
Since there are less number of firms, any action taken by one firm has a considerable effect on the other. Oligopolistic market is found in the producers of industrial products such as aluminum, copper, steel, zinc, iron, etc. As a result, price rigidity prevails in such markets.
If any firm makes a price-cut it is immediately retaliated by the rival firms by the same practice of price-cut. There are five types of oligopoly market, for detailed description, click on the link below: Existence of Price Rigidity: In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors.
Profit margins are thus higher than they would be in a more competitive market. This leads to another feature of the oligopolistic market, the presence of competition. A symmetrical situation with firms of a uniform size is rare.
Therefore, Oligopolistic market competing firms will be aware of a firm's market actions and will respond appropriately. Thus, advertising is a powerful instrument in the hands of an oligopolist. Modeling[ edit ] There is no single model describing the operation of an oligopolistic market.
Under oligopoly a firm cannot assume that its rivals will keep their price unchanged if he makes charge in its own price. Another important feature of oligopoly is the analysis -of group behaviour. Thus under oligopoly a firm not only considers the market demand for its product but also the reactions of other firms in the industry.
In a perfectly competitive PC market there is zero interdependence because no firm is large enough to affect market price. Hence, there is a complete interdependence among the sellers with respect to their price-output policies.
Thus advertising and selling cost play a great role in the oligopolistic market structure. Oligopoly is said to prevail when there are few firms or sellers in the market producing and selling a product.
Game theorists have developed models for these scenarios, which form a sort of prisoner's dilemma. Computer Operating Systems New high tech markets can become oligopolies when the companies provide unique products that are supported by an ecosystem of supporting technology.
Hence, there is a complete interdependence among the sellers with respect to their price-output policies. In this case, an oligopolist can hope that its demand would increase substantially as the prices are lowered, ii When an oligopolist reduces his price, the other sellers also lower their prices by an equivalent amount.
And because there is so little of the market available to competitors, new entrants to an oligopoly rarely succeed. Financial Definition of oligopoly What It Is An oligopoly is an economic market whereby a small number of companies or countries generate and control the entire supply of a good or service.
Oligopoly is of two types-oligopoly without product differentiation or pure. No firm can fail to take into account the reaction of other firms to its price and output policies. No firm can predict the consequence of its price-output policy.
Thus under oligopoly a firm not only considers the market demand for its product but also the reactions of other firms in the industry. In market structures other than oligopolistic, demand curve faced by a firm is determinate.Definition: The Oligopoly Market characterized by few sellers, selling the homogeneous or differentiated products.
In other words, the Oligopoly market structure lies between the pure monopoly and mon. — The Economist, "The market for driverless cars will head towards monopoly," 7 June But now, according to Georgette Boele, diamond industry analyst at ABN AMRO, the market is an oligopoly, with three mining giants dominating smaller players.
Oligopoly is the least understood market structure; consequently, it has no single, unified theory. Nevertheless, there is some agreement as to what constitutes an oligopolistic market. Oligopoly Market Definition: The Oligopoly Market characterized by few sellers, selling the homogeneous or differentiated products.
In other words, the Oligopoly market structure lies between the pure monopoly and monopolistic competition, where few sellers dominate the.
oligopoly - (economics) a market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors.
market, marketplace, market place - the world of commercial activity. Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence.Download