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* PRICE AND OUTPUT

DETERMINATION
UNDER OLIGOPOLY

GUIDED BY
RAJNI MAM

PRESENTED BY
KAJAL AHUJA

SOURCE- MANAGERIAL ECONOMICS


BY H.L. AHUJA

Oligopoly is said to
prevail when there are
few firms or sellers in the
market
producing
or
selling
a
product.
It is also referred as,
Competition among the
few.

Characteristics of oligopoly
1.
2.
3.
4.
5.

Few firms and large buyers


Homogeneous
products
or
the
products are close substitutes of
the product.
Mutual interdependence between
the firms.
Barriers to entry.
Importance of advertising and
selling costs.

Classification Of Oligopoly

1.Perfect

and Imperfect

oligopoly
2.Open and Closed oligopoly
3.Partial and Full OligopolyDominant and no dominant firm
4.Collusive and Non collusive
oligopoly

KINDS OF INDUSTRIES IN OLIGOPOLY:


The oligopolistic industries are classified in
a number of ways:
(a) Duopoly: If there are two giant firms in
an industry it is called duopoly. Duopoly is
further classified as below:
(i) Perfect or Pure Duopoly
(ii) Imperfect or Impure Duopoly
(b) Oligopoly: Oligopoly is further classified
as below:
(i) Perfect or Pure Oligopoly
(ii) Imperfect or Impure Oligopoly

PRICE DETERMINATION UNDER OLIGOPOLY:


The price and output behaviour of the firms
operating in market condition can be studied
under two main heads:
1. Price and Output Determination under
Duopoly:
(a) Homogenous products: there is every
likelihood of collusion between the two firmsdivide the total market, or assign quota, merge
and form a monopoly or try to differentiate
their products.
(b) Perfect substitutes: the two firms may be
engaged in price competition. (Lower costs
results in better goodwill)
(c) Differentiated products: The firm good
quality product with lesser cost will earn
abnormal profits.

2. Price and Output Determination under


Oligopoly:
(a) Identical or homogenous products:
they will try to promote collusion.
(b) Product differentiation: an oligopolist
can raise or lower his price without any
fear of losing customers or of immediate
reactions from his rivals.

Price and output decisions under


Oligopoly
In oligopoly, if one firm changes
its price, other firms react by
changing their prices. The demand
curve for the initial firm shifts
position so that instead of moving
along a single demand curve as it
changes price, the firm moves to
an entirely new demand curve.

If one firm cuts its price and obtains substantial


increase in volume, other firms lose a large part of
their business. Furthermore, they know exactly why
their sales have fallen and react by cutting their own
prices.

Collusive Oligopoly:
Cooperative model

1. Joint

Cartel

as

profit maximisation cartelpurpose of maximising profits by


joining together
2. Market-sharing cartel(a) Divide the Markets
(b) Set the Quotas

Let us see how the cartel arrangement works


with the help of a diagram.

MCa/MCb:
MCa/MCb:
ACa/ACb:
ACa/ACb:

2
2 Firms,
Firms, A
A and
and B
B
Marginal
Marginal cost
cost of
of firm
firm A
A and
and firm
firm B.
B.
Average
Average cost
cost of
of firm
firm A
A and
and firm
firm B.
B.
MR:
MR: Marginal
Marginal Revenue
Revenue
DD:
DD: Demand
Demand curve
curve
MC:
MC: MCa
MCa +
+ MCb
MCb

THANK YOU..!!

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