OLIGOPOLY

Oligopoly and Characteristics of Oligopoly

Oligopoly

Introduction

The word oligopoly refers to the market form in which there are few sellers who controls the entire market. This makes the market disequilibrium, inflecting both the efficiency and the entire society. As there are few participants in this market, each oligopolistic is aware of the actions of others. Company's decision affects or influence on decisions of the other companies. Due to this position, and maintain the power in the market, company tends to have higher prices and lower production. Oligopoly assumes the existence of several companies that are offering the same product, magnificent of the oligopoly, is the existence of important interactions between the producers and not the number of companies on the market.

An oligopoly can influence the prices. Usually in an oligopolistic market there are market leaders with great influence on prices and small businesses that cannot influence the competition. This causes the market leaders (few firms) to control prices (Perman & Scouller, 1999).Characteristics of Oligopoly

There are a number of characteristics of oligopoly that differentiate it from other form of market structure. Nevertheless, there are three most essential characteristics of oligopoly which underline common behaviour of the oligopolistic that comprises of decision making and interdependence action, preference to keep the prices rigid, the quest of non-price competition instead of price competition, firm propensity to merge and lastly the benefit to form conniving arrangements.The three fundamental characteristic are:

1. Industry is subjected by a small number of larger firms.2. Firm sells differentiated or similar products.3. Barrier to entry

Small Number of Large Firms

The most critical characteristics of oligopoly is that this industry is subjected by a small number of large firms. Each firm in this market structure is big compare to the entire size of the market. Due to this characteristic, each firm has a considerable control on the market. The control is not as much as in the monopoly but more than monopolistically competitive firm. The number of firms in the oligopolistic industry is not the dominant concern. They can have any large number of firms. Therefore, the unique feature of the oligopoly is that the forms are comparatively big comparing to the entire market structure. In a given industry where thousands of firms are operating, for instances, is regarded as oligopolistic, if half of the industry total output is from tops five firms (James, 2003).

For instance, the hypothetical textile industry contain 30 firms but is an oligopolistic as the three largest firms producing 70% of the total industry sales and the top six firms producing above 80% of profit.

Differentiate or Identical Products

A number of oligopolistic industries manufactured products same as perfect competition. However, other market structure generating products that are differentiate similar to the monopolistic competition. This feature indicates a bit namby-pamby that includes both the issues of product differentiation.

However, oligopolistic industries produce two varieties for their consumers.

Identical Product Oligopoly: They likely to development raw materials or manufacture intermediate goods which are utilized other industries as inputs. For instance, steel, aluminium or petroleum are examples of identical product oligopoly.

Differentiate Product Oligopoly: These industries likely to produce those products which are personal ...