Page 286 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-15: Theory of Oligopoly

Notes
(iii) Group Behaviour: The basis of Oligopoly is group behaviour and not gathering or personal behaviour.
There is no general accepted basis of group behaviour. Will the members of the group agree to boost for their
general rights or should they fight for their own personal rights? Is there a leader of that group? If yes, then
how does he manage to make the others follow him? Questions like these are important to determine the
theory of group behaviour. But one thing is for sure. Every oligopolistic industry keeps vigilance over other
oligopolistic industries’ business behaviour. Based upon their behaviour and reactions, they plan everything.
The basic difference between complete competition, monopoly, monopolist competition and Oligopoly is
that the decisions of the oligopolistic firms in the Oligopolistic market affect the other participants in the
market, whereas this feature is missing in other forms of market.

Price rigidness exists in Oligopolistic market.

15.2 Behaviour of Oligopolistic Firms and
Other Market Structures

Firms in the Oligopolistic firms get affected by the
behaviour of other firms in the market. Therefore, Strategic and non-strategic conduct
the firms adopt a strategic way of conduct. In other Strategic conduct is the one in which a firm
words, they keep a crystal clear idea of the effects considers and anticipates the behaviour and reaction
their decisions would cause over other firms and of its competitor firms while deciding over the price
how would they react. Whereas, in competitive and and production. Oligopolistic market is a good
monopolistic competition have an non-strategic example of this. Non-strategic conduct refers to the
way of conduct which means that their decisions are one in which a firm does not have to worry about the
completely based upon their costs and demand curves reaction and behaviour of its competitors and has
and they do not have to anticipate the reactions of to only consider its costs and demand curves while
their competitors. Based on this, even the monopoly deciding over price and production.
market adopts the non-strategic way as they do not
have to face any competition.

Self Assessment

Multiple choice questions:
5. A firm can achieve ...................... by coalition through increase in price.
(a) monopolistic profits (b) profit (c) loss (d) none of these
6. Price rigidness means no ...................... in the prices by the firms.
(a) change (b) increase (c) reduction (d) none of these
7. Oligopolistic is the form of market ..................... .
(a) lowest (b) highest (c) competent (d) none of these
8. Deciding over production and price in the absence of profit maximisation as a motive is
........................... .
(a) hard (b) very hard (c) easy (d) very easy

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