Characteristics of oligopoly, Managerial Economics

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Oligopoly can be characterized as follows:

  • Small Number of Sellers: There are more than one sellers of a product though; the number isn't so huge in order to produce perfect competition of monopolistic competition.
  • Interdependence of Sellers: All the sellers are dependent on one another. They aren't free to establish their own marketing and price policies. Activities of one seller have an effect on others.
  • Homogenous product: Product of all the sellers is identical or a close substitute to one another.
  • Uniformity of Price: All the sellers adopt a uniform price policy because of the uniformity of their product.
  • Price Rigidity: As the activities of all sellers are inter-reliant, sellers prefer not to change the price of their product too frequently. For that reason market price tends to be steady.
  • Entry and Exit of Firms: The entry and exit of organisations is relatively difficult due to non-availability of raw materials, labour, etc.
  • Inconsistency in Firms: All the organisations operating in a market aren't precisely similar to one another. One organisation could be tiny and another organisation could behuge.
  • Uncertainty of Demand Curve: Demand curve is extremely erratic. An organisation can't predict its demand curve without difficulty since it's extremely difficult to predict whether or not competitors will change their policies of organisations. It is furthermore extremely difficult to predict the level of such changes. For this reason, demand curve of an oligopoly organisation is constantly erratic.

 


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