Scribd
Upload
285 views2 pages

Oligopoly

1. An oligopoly is a market structure with few dominant firms that together produce a large portion of the total industry output. 2. In an oligopoly, products can be either identical (like raw materials) or differentiated (like cars and appliances). 3. Oligopolistic firms sometimes agree on prices and output levels in order to promote their economic interests and avoid surplus production that would lower prices. The largest firms, like OPEC members, may act as price leaders.

Uploaded by

dave magcawas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
285 views2 pages

Oligopoly

1. An oligopoly is a market structure with few dominant firms that together produce a large portion of the total industry output. 2. In an oligopoly, products can be either identical (like raw materials) or differentiated (like cars and appliances). 3. Oligopolistic firms sometimes agree on prices and output levels in order to promote their economic interests and avoid surplus production that would lower prices. The largest firms, like OPEC members, may act as price leaders.

Uploaded by

dave magcawas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Oligopoly

1. There are very few firms which dominate the market. Each firm produces a big portion of the total
industry output.

2. Products are identical or differentiated. Raw materials like steel, zinc, lead; cement and other industrial
raw materials are identical products. Finished goods like typewriter, airplanes, locomotives, cars and
sewing machines are differentiated products

3. There is a price agreement among the producers to promote their own economic interests. The biggest
among the producers is the price leader in the case of OPEC (Organization of Petroleum Exporting
Countries), the price leader is Saudi Arabia which is the biggest oil producer. Moreover, there is also
output agreement among the oligopolists to avoid surplus which causes decline in price. It is not
uncommon for them – like OPEC – to cut down production to secure a higher price.

4. The entry of new competitors in the market is difficult. It requires enormous capital and large- scale
production. It is very difficult for new firms to compete with existing firms because these are already
well-established. However, despite formidable competition, it is still possible for new firms to enter the
market. Unlike under pure monopoly, there are certain legal and economic restrictions which is no longer
possible or feasible for new firms to enter the market. If they succeed, then it would no longer be pure
monopoly such as in the case of San Miguel Beer. Another beer company has been able to penetrate the
market.

5. There is strong advertising among those who produce differentiated products like cars, cigarettes, and
appliances. However, in the case of identical products like the industrial raw materials, advertising is only
for image-building. Usually the deeper interest of the firms is in the community and the firm’s
contributions to the growth of the economy.

Table 5.1: Demand and Revenue schedule of a purely competitive firm.

Price Quality Demanded TR(Total MR(Marginal AR(Average


Revenue) Revenue) Revenue)
P5 1 P5 P5 P5
5 2 10 5 5
5 3 15 5 5
5 4 20 5 5
5 5 25 5
Figure 5.1: Demand, Marginal, Revenue and Total Revenue of a purely competitive firm(Note: this is not
a graph of Table 4.1)

TR

Price

And

Revenue D=MR

Quantity
Demanded

You might also like