A structure of market in which there is domination by certain companies is called oligopoly.
When several companies are sharing the same market structure, the concentration of the market increases. There are generally a number of firms surviving in the market, but out of them, there are few that dominate the market.
The ratio of concentration is used to identify oligopoly. The rate checks the sharing proportion of the required firms in the market. When the concentration ratio of a particular industry is on the higher side, the situation is identified to be an oligopoly. Students can learn more about oligopoly by searching online links like oligopoly homework help.
Model of kinked curve of oligopoly
The assumption of the kinked curve is that a firm might have to face a demand curve regarding its articles that is dual in nature. This could be based on the reactions that other companies might have to changes in the cost of the products. Details about the kinked curve can be obtained from an online search on topics like oligopoly homework help.
Assumptions of the model of kinked curve:
- In case a firm increases its prices but the competitive firms keep their costs constant, then there is every possibility that the firm rising prices will lose its impact on the market and might as well go through a loss as it will lose customers and as a result lose revenue.
- Companies that are a part of the oligopoly try to maintain and protect their share in the market and the competitive companies do not increase the price of their product even if a company increases their price.
- On the contrary, rivals decrease their price in case one company that is a part of the oligopoly decreases their costs. Thus, it can be said that competitive firms react inversely to any change of price other companies.
- In case a company reduces the cost of any of its products, and other competitors follow the same, then the reduction in price is very small and the demand of the product is also less. Reduction of price of products that have less demand in the market can also result in reduction of revenue and will have very less effect of the company on the share of the market. Students can learn more about the assumptions of the model by searching topics like oligopoly homework help
Characteristics of oligopoly:
- In oligopoly, there are a number of firms that exist in the same market but their accurate number is not restricted. All these companies produce a part of the output that the market produces. All these firms compete with each other to get the better share of the market. While doing so the companies bring changes in their prices or production volume so that they can win over their competitors.
- The companies that are a part of the oligopoly are interdependent on each other. Any action taken by one firm can affect the others, so companies in an oligopoly keep close watch on their competitors in terms of their prices or production volumes. In case one company brings in any change in its price or production quantity, the competitors react accordingly in order to win over the firm.
- There are various barriers in an oligopoly that prevent new companies to enter the market. The firms that are already a part of the oligopoly have already made their mark and new companies require huge capital and materials to enter into the This prevents upcoming firms to enter the market and this in the long run proves to be beneficial for the firms that are already a part of the oligopoly as they can earn hug profit in years to come.
- In an oligopoly, firms have the possibility to influence the price of their products but in actual practice, companies try to avoid price competition. Instead, companies try to be rigid with their prices and they keep it fixed irrespective of any variation in the supply or demand. Several other tools like giving better customer services or advertising are used instead of price competition in order to dominate the market.
- When firms are a part of the oligopoly, they are interdependent on each other in respect to their product prices and production quantities. So generally decisions of one firm can affect the market condition of other competitors. So, decisions taken in an oligopoly are generally taken collectively as a group rather than a single entity so that it can prove to be beneficial for all the firms in the oligopoly although each firm still remains an individual unit.
- Since there is immense competition among firms that are a part of the oligopoly, advertising becomes an integral part of the selling process and firms practice a non-price competition. Learners wanting to know more about the features of oligopoly can search for topics like oligopoly homework help
Different types of oligopoly:
Categorization based on ease of entry:
A situation in the market where a company can easily enter the market at any point of time is called open oligopoly.
A situation in the market where a firm cannot enter the market easily, where there are barriers that restrict the entry of a new firm onto the market is called closed oligopoly.
Categorization based n leadership of price:
In a market scenario where there is one huge firm which dominates the market then this firm is referred to as the price leader of the firm.
In a market situation where there is absence of any leadership of one particular firm rather the market is shared by a number of firms, then it is called full oligopoly.
Categorization based on differentiation of products:
In an oligopoly, where the different firms deal with similar or homogeneous products, it is termed as pure oligopoly.
When the different companies that are a part of the oligopoly sell different or heterogeneous products that are not substitutes of each other, then it is called impure oligopoly.
Categorization based on amount of coordination among firms:
When the companies that are a part of the oligopoly unite to sell their manufactured articles to attain a common goal, it is termed as syndicated oligopoly.
When prices and other variables of the different firms of the oligopoly are determined by a central body, then it is called organized oligopoly.
Categorization based on understanding among firms:
When all companies that are a part of the oligopoly unite to decide on the price and quantity of their products with every firm’s consent, it is termed as collusive oligopoly.
When the understanding between the firms of the oligopoly is weak and each firm competes with each other individually with the motive of outshining each other, it is called non-collusive oligopoly.
Oligopoly is thus an integral part of business culture as generally all businesses have to survive competition to stay in the market. This is an important subject of study and learners who find interest in the topic should have in-depth knowledge that can be obtained from online search of links like oligopoly homework help.