Price Determined Under

Oligopoly
Presented By:-
Apoorv Goel (06)
Dhawal Sharma (14)
Poonam Khurana (38)
Prehans Singh
Sourabh Jalan
Ujjwal
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 INTRODUCTION
The Term “Oligopoly” has been derived from two Greek
words.
‘Oligi’ which means few and ‘Polien’ means sellers.

Thus Oligopoly is an abridged version of monopolistic



competition . It is a competition among few big sellers

each one of them selling either homogenous or
hydrogenous products.


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 Meaning Of Oligopoly

Oligopoly refers to a market situation where there r a few sellers



(2 to 10) in a market, selling homogenous or differentiated

products. Oligopoly is often described as ‘Competition among
few’.


When the products of a few sellers are homogenous it is known as



‘Pure Oligopoly’ When the products of few sellers are

differentiated , but close substitutes of each other it is known as
“Differentiated Oligopoly” .

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What are some examples of
Oligopoly?
 Automobiles

 Steel

 Soup

 Cereals


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What determines if a market is an
Oligopoly?
 The concentration ratio


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What concentration ratio constitutes an
Oligopoly?
 There is no magic number, but if a large percentage of the
sales are from the 4 largest firms, it’s an Oligopoly


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What is an example of a high
concentration ratio?
 Out of 151 firms in the aircraft industry the leading 4
constitutes 79% of total sales


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Characteristics Of Oligopoly

 Few Sellers
 Homogeneous or Differentiated Product
 Interdependence :
 Importance of Advertising and Selling costs
 Price Rigidity
 Restriction to Entry

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HOW PRICES ARE DETERMINED?
 Interdependent Pricing
 Price wars

 Price Leadership

 Formal Agreement : Cartel

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1. Interdependent Pricing

 Some economists have assumed that oligopolistic firms

ignore interdependence . When interdependence
disappears from decision making the demand curve
facing the oligopolistic becomes determinate.


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2. Price Wars
 Some economists assume that an oligopolistic is able to
predict the counter moves of his rivals, and they provide
a determinant solution to the price and output problem.
 The objectives of price wars :

i. To seize the major part of the total sales

ii.To expand the monopoly power after victory
iii.To threaten the rivals so that they they accept its
leadership.

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3. Price Leadership
 Another approach is that the firms in an Oligopoly would
accept one firm as a leader and would follow him in
setting prices. Such a leader firm may be dominant or
low-cost firm producing a very large proportion of the
total production and having a great influence over the
market.
 The form of price leadership:

i. Leadership of dominant firm

ii.Barometric price leadership
iii.Exploitative or Aggressive leadership

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4. Formal Agreement : Cartel
 A group of firms that collude to limit
competition in a market by negotiating and
accepting agreed-upon price and market
shares.
 Two models of imperfect cartels:

i. Joint-Profit Maximizing Cartels

ii.Market-sharing cartels
iii.


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Kinked Demand Curve Model
 According to the kinked demand curve hypothesis, the
demand curve facing the Oligopolistic has a ‘Kink’ at
the level of the prevailing price. The kink is formed at
the prevailing price level because the segment of the
demand curve above the prevailing price level is highly
elastic and the segment of the demand curve below the
price level is inelastic.


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 Y d

k
Pric

P
e

O Q X
Outpu
t
Kinked Demand Curve Under
Oligopoly
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Game Theory
 A theory of strategy ascribed to a firm’s behavior in
oligopoly
 What is the Prisoner’s Dilemma?
 - A series of individual choices within a
small group, each one’s choice effects the
outcome of the others.


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- An example of the Prisoner’s Dilemma is the
Payoff Matrix
-
Both Sam Sam confesses
and Bill confess and Bill doesn’t

Bill confesses Neither Sam

and Sam nor Bill
doesn’t confesses 17
Cournot’s Duopoly Model
 Augustin Cournot, the French economist,
developed the earliest model of duopoly in
1838.
 Following assumptions are:

i. Two sellers
ii.Prefectly substitute commodity
iii.Indentical cost
iv.No entry
v.Absence of inter-dependence.

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THANK YOU

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