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Oligopolies are price setters rather than price takers. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. High barriers of entry prevent sideline firms from entering market to capture excess profits.
Product differentiation Product may be homogeneous steel or differentiated automobiles. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete.
Buyers have only imperfect knowledge as to price,  cost and product quality. Interdependence The distinctive feature of an oligopoly is interdependence.
Each firm is so large that its actions affect market conditions. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant.
This anticipation leads to price rigidity as firms will be only be willing to adjust their prices and quantity of output in accordance with a "price leader" in the market.
This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures.
In a perfectly competitive PC market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about.
Non-Price Competition Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition.
Oligopolies in countries with competition laws[ edit ] Oligopolies become "mature" when they realise they can profit maximise through joint profit maximising. As a result of operating in countries with enforced competition laws, the Oligopolists will operate under tacit collusion, being collusion through an understanding that if all the competitors in the market raise their prices, then collectively all the competitors can achieve economic profits close to a monopolist, with out evidence of breaching government market regulations.
Hence, the kinked demand curve for a joint profit maximising Oligopoly industry can model the behaviours of oligopolists pricing decisions other than that of the price leader the price leader being the firm that all other firms follow in terms of pricing decisions.
As 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. In Oligopolist cheating, and the incumbent firm discovering this breach in collusion, the other firms in the market will retaliate by matching or dropping prices lower than the original drop.
Hence, the market share that the firm that dropped the price gained, will have that gain minimised or eliminated.
This is why on the kinked demand curve model the lower segment of the demand curve is inelastic. As a result, price rigidity prevails in such markets. Modeling[ edit ] There is no single model describing the operation of an oligopolistic market. However, there are a series of simplified models that attempt to describe market behavior by considering certain circumstances.
Some of the better-known models are the dominant firm modelthe Cournot—Nash modelthe Bertrand model and the kinked demand model.
Cournot competition The Cournot — Nash model is the simplest oligopoly model. To find the Cournot—Nash equilibrium one determines how each firm reacts to a change in the output of the other firm.
The path to equilibrium is a series of actions and reactions. The pattern continues until a point is reached where neither firm desires "to change what it is doing, given how it believes the other firm will react to any change. The reaction function shows how one firm reacts to the quantity choice of the other firm.
Firm 1 wants to know its maximizing quantity and price. Firm 1 begins the process by following the profit maximization rule of equating marginal revenue to marginal costs.
The marginal revenue function is R.This is a huge list of government agencies, commissions, bureaus, foundations, divisions, directorates, departments, bureaus, administrations, and institutes, many of them overlapping, redundant or unnecessary.
There is no constitutional authority for the creation . For example, the scarcity of certain materials, such as leather, may force retail and wholesale clothing companies to sell more faux or substitute leather products. The Online Writing Lab (OWL) at Purdue University houses writing resources and instructional material, and we provide these as a free service of the Writing Lab at Purdue.
2 UNCG Undergraduate Bulletin 4 Notices Equality of Educational Opportunity The University of North Carolina at Greensboro is com-mitted to equality of educational opportunity and does not. What has been happening to the exchange rate of the US$? Give reasons. How is the exchange rate of a currency determined? If the value goes down will that help or hurt the trade deficit? Advantage India: A Study of Competitive Position of Organized Retail Industry ashio-midori.com 58 | Page.
A monopoly (from Greek μόνος mónos ["alone" or "single"] and πωλεῖν pōleîn ["to sell"]) exists when a specific person or enterprise is the only supplier of a particular commodity. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few sellers dominating a market.
What has been happening to the exchange rate of the US$? Give reasons. How is the exchange rate of a currency determined? If the value goes down will that help or hurt the trade deficit? Description. Oligopoly is a common market form where a number of firms are in competition. As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized.
This measure expresses, as a percentage, the market share of the four largest firms in any particular industry.