Characteristics of oligopoly as one of the basic market structures

A perfectly competitive market is one in which the number of buyers and sellers is very large, all engaged in buying and selling a homogeneous product without any artificial restrictions and possessing perfect knowledge of market at a time.

Characteristics of oligopoly as one of the basic market structures

Oligopoly is said to prevail when there are few firms or sellers in the market producing and selling a product.

Top 9 Characteristics of Oligopoly Market

In brief oligopoly is a kind of imperfect market where there are a few firm in the market, producing either and homogeneous product or producing product which are close but not perfect substitutes of each other.

There is no such border line between a few and many. Usually oligopoly is understood to prevail when the numbers of sellers of a product are two to ten.

Oligopoly is of two types-oligopoly without product differentiation or pure. Oligopoly and oligopoly with product differentiation. The firms under oligopoly are interdependent in making decision.

Thus under oligopoly a firm not only considers the market demand for its product but also the reactions of other firms in the industry. No firm can fail to take into account the reaction of other firms to its price and output policies.

There is, therefore, a good deal of interdependences of the firm under oligopoly. Importance of advertising and selling costs: The firms under oligopolistic market employ aggressive and defensive weapons to gain a greater share in the market and to maximise sale.

In view of this firms have to incur a great deal on advertisement and other measures of sale promotion. Thus advertising and selling cost play a great role in the oligopolistic market structure. Under perfect competition and monopoly expenditure on advertisement and other measures is unnecessary.

But such expenditure is the life-blood of an oligopolistic firm. Another important feature of oligopoly is the analysis -of group behaviour. In case of perfect competition, monopoly and monopolistic competition, the business firms are assumed to behave in such a way as to maximize their profits.

The profit-maximizing behaviour on his part may not be valid. The firms under oligopoly are interdependent as they are in a group. Indeterminateness of demand curve: This characteristic is the direct result of the interdependence characteristic of an oligopolistic firm.

Mutual interdependence creates uncertainty for all the firms.

Perfect Competition Market Structure

No firm can predict the consequence of its price-output policy. Under oligopoly a firm cannot assume that its rivals will keep their price unchanged if he makes charge in its own price.

As a result, the demand curve facing an oligopolistic firm losses its determinateness. There exist some elements of monopoly under oligopolistic situation.

Under oligopoly with product differentiation each firm controls a large part of the market by producing differentiated product. In such a case it acts in its sphere as a monopolist in lining price and output.

Under oligopoly there is the existence price rigidity. Prices lend to be rigid and sticky.

Oligopoly - Wikipedia

If any firm makes a price-cut it is immediately retaliated by the rival firms by the same practice of price-cut.

There occurs a price-war in the oligopolistic condition. Hence under oligopoly no firm resorts to price-cut without making price-output decision with other rival firms. The net result will be price -finite or price-rigidity in the oligopolistic condition.Market Structure: Meaning, Characteristics and Forms | Economics.

Forms of Market Structure. Characteristics of Market: This leads to the emergency of oligopoly. If only one firm attains economies of scale to such a large extent that it is able to meet the entire market demand, there is monopoly.

The UK definition of an oligopoly is a five-firm concentration ratio of more than 50% (this means the five biggest firms have more than 50% of the total market share) The above industry (UK petrol) is an example of an oligopoly.

Characteristics of oligopoly as one of the basic market structures

Oligopoly is one of four common market structures. The other three are: perfect competition monopoly, and monopolistic competition. The exhibit to the right illustrates how these four market structures form a continuum based on the relative degree of market control and the number of competitors in the market.

Barriers to entry are the key characteristic that separates oligopoly from monopolistic competition on the continuum of market structures.

Characteristics of oligopoly as one of the basic market structures

With few if any barriers to entry, firms can enter a monopolistically competitive industry when existing firms . A monopolistic market is a market structure with the characteristics of a pure monopoly. A monopoly exists when there is only one supplier of a good or service, but many consumers.

In a. An oligopoly describes a market structure which is dominated by only a small number firms.

Monopolistic Competition Market Structure

This results in a state of limited competition. The firms can either compete against each other or collaborate. By doing so they can use their collective market power to drive up prices and earn more profit.

What is Oligopoly Market? definition, meaning and features - Business Jargons