What main features are found in oligopolies?

Assumptions of oligopoly

• Four or five firm concentration ratio
• Frequently there are benefits of scale to be had
• Mergers, take-overs and buy-outs are common
• Incentive to collude, i.e. build cartels

a)  collusion not limited to price or output - possible to divide markets or limit entrants

b)  collusion is most often illegal

 c) Collusion often short-lived, as cheating is a strong incentive

d)  Overt and tacit collusion

e)  Price leader

• Non-collusive oligopolies

a) Non-collusive outcome results often in price rigidity

b) Firms are heavily interdependent and reluctant to engage in head-on competition

c) Non-price competition may result in both new and better goods - or at least the marketing effort will increase perceived quality