Classification of oligopoly market. Useful Notes on the Classification of Oligopoly Market 2022-11-07
Classification of oligopoly market
An oligopoly is a market structure in which there are a few firms that dominate the industry. These firms have some level of market power and are able to influence the prices of the products they sell. There are several ways to classify oligopoly markets, and each method highlights different aspects of the market structure.
One way to classify oligopoly markets is based on the level of competition between the firms. Some oligopoly markets are highly competitive, with firms constantly trying to outdo each other in terms of price, quality, and innovation. In these markets, firms may engage in price wars and other forms of intense competition in order to gain an advantage over their rivals. Other oligopoly markets are less competitive, with firms choosing to cooperate rather than compete. In these markets, firms may engage in price fixing or other forms of collusion in order to maintain their market power.
Another way to classify oligopoly markets is based on the level of barriers to entry. Some oligopoly markets have high barriers to entry, which means it is difficult for new firms to enter the market and compete with the existing firms. These barriers may be the result of regulatory requirements, patents, or other legal protections that limit competition. Other oligopoly markets have low barriers to entry, which means it is easier for new firms to enter the market and compete with the existing firms.
A third way to classify oligopoly markets is based on the level of product differentiation. Some oligopoly markets have products that are highly differentiated, meaning that the products offered by different firms are unique and offer distinct value to consumers. In these markets, firms may engage in marketing campaigns to differentiate their products from those of their rivals. Other oligopoly markets have products that are undifferentiated, meaning that the products offered by different firms are similar and offer little in the way of distinct value to consumers. In these markets, firms may engage in price competition in order to gain an advantage over their rivals.
Overall, the classification of oligopoly markets depends on a variety of factors, including the level of competition between firms, the level of barriers to entry, and the level of product differentiation. Understanding these factors is important for firms operating in oligopoly markets, as they can help to shape the strategies that firms use to compete and succeed in these challenging market environments.
Oligopoly: Types, Causes, Consequences and Characteristics
This is called as price rigidity under oligopoly. Entry of Firms : ADVERTISEMENTS: On the basis of ease of entry of competitors in the market, oligopoly may be classified as open or closed. On the basis of Cooperation: This market can be classified on the basis of cooperation, as: Collusive and Non-collusive Oligopoly: Collusive Oligopoly is that market in which firms cooperate with each other in determining the price. Â However, oligopoly can only be realized if the number of companies or producers is less than 10%. By making consumers aware of product differences, sellers exert some control over price. Absolute cost advantages arise if the oligopolist controls managerial skills, technology or raw materials required for production.
Oligopoly Defined: Meaning and Characteristics in a Market
But theoretically we may determine price and output in both kinds of oligopoly. Such prices are typically found in the stock exchange. In view of these, oligopolistic industries are of many types. Relative cost advantages are conferred by product differentiation, high initial capital requirements and economies of scale. Least Cost Firm as a Price Leader: In an industry where scale economies play an important role, the least cost firm performs the role of market leader. There are so few sellers that recognize their mutual dependence. This model also states that if the firm lowers its prices, the competitors would follow suit and the firm's output would increase only marginally.
What is Oligopoly? Market, Concept and Characteristics
Finally, even a random variation in growth rates of firms may lead to shrinkage in their number. Under organised oligopoly, the firms organise themselves into a central association for fixing price, output, quota, etc. The model also supposes that the two firms are competing with one another on a quantity basis, and not on price. Each firm pursues its own price and output policy independent of the rival firms. ADVERTISEMENTS: Some define that when the number of sellers vary between 2 and 20, the market is said to be an oligopolistic one. In perfect competition, the market demand may be too small to support a large number of producers operating at optimum scale.
Oligopoly Market: Types, Barriers to Entry, Price Rigidity and Limit Pricing
This may be ensured through the public distribution system. The price rigidity is found under the oligopoly on account of the following reasons: 1 When the firms under oligopoly make an understanding not to follow the price war because it does not favour none of them. In other words, they combine together to avoid competition among themselves regarding the price and output of the industry. The distinction between pure oligopoly and differentiated oligopoly does not play a significant role in the analysis. It occurs when there are Duopolies Duopoly is often seen as a form of oligopoly. Coordination : An oligopoly situation may be classified into organised and syndicated oligopoly on the basis of the degree of coordination found among the firms. Open or explicit collusion is generally sanctioned by the government or tacit or implicit collusion is normally secret.
Oligopoly Market: Nature and Types
An oligopoly market can indeed be regarded as an unhealthy or imperfect market activity, but in reality, this type of market is competitive for the same product between one producer and another. ADVERTISEMENTS: Price-output variations will distinctly affect the sales and prices of other firms, which will tend to respond accordingly. In short, p e is the equilibrium price. Such a kinked demand curve has been drawn in Figure-13. They will fix their respective prices either same or somewhat less than the leader so as to remain competitive in the market. Thus, state administered distribution must necessarily back up state administered pricing if the price fixed is lower than the equilibrium price. Gardiner Means in a paper submitted to an official committee of the United States.
Reasons for the Prevalence. This markup percentage may be calculated by the formula: The target return pricing model also suffers from the same limitations as other cost plus approaches. Hence the limit price can be higher than the average cost of the oligopolist. Thus, They collude to form a cartel. The kink will be formed at a price-output combination where the firm will prefer to operate.
Types Of Oligopolies
Use examples different from those given in the text. Entry Barriers for new firms in Oligopoly: Under this market, there are entry barriers for new firms. On what does the limit price depend? ADVERTISEMENTS: No specific or predictable behavioural pattern is discernible since a great deal of uncertainty is involved as far as actions and reactions are concerned. Instead some form of imperfect collusion between rival oligopoly firms may be agreed upon. Generally, these are created through patent rights. It has been observed that oligopolists rarely exercise this freedom to maximize their profits. Interdependence of firms may encourage firms to compete with their rivals or may cause sellers to collude with each other.
Useful Notes on the Classification of Oligopoly Market
The output corresponding to this point is OQ. It is about the full control of the Business interdependence In collusive relationships, companies reach agreements to control the market. It will set a price which may not be viable for the competitors. In other words, greater the homogeneity of the product, greater will be interdependence among sellers. But what if there was a substantial price difference between the two? Dominant Firm Model This is a type of oligopoly in which the industry comprises one large firm and a group of much smaller firms. As a result, many of the same institutional factors that facilitate the development of market economies by reducing prisoner's dilemma problems among market participants, such as secure enforcement of contracts, cultural conditions of high trust and reciprocity, and laissez-faire economic policy, might also potentially help encourage and sustain oligopolies. Least cost firm as a price leader 3.
1.5 Monopolistic Competition, Oligopoly, and Monopoly
The actions of each firm in an oligopoly do affect the other sellers in the market. In this, Heavy advertisement creates brand loyalty. This may finally lead to emergence of monopoly of the dominant firm. Thus, when a firm lowers the price, the rivals also reduce the same immediately. There are so few sellers that they recognize their mutual dependence. Since industrial prices are anyway privately administered, public administration of these prices should not be a difficult task. As with information about oligopolies, we need to recognize and understand oligopolies through their understanding.