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Unit-15: Theory of Oligopoly

as well. Only big firms who have a diversified range of products can bear the non-production costs. Notes
Due to their comprehensive size (as compared to any specific plant), these firms can make savings
in their sectors. Because of the savings in their sectors, big firms are capable of dividing the costs
incurred by non-production amongst the products and services that they produce. Therefore, their
cost curve is always inclined downwards. This is another reason for the emergence of Oligopolistic
structure.

Self Assessment

State whether the following statements are True/False:
9. The basis of Oligopoly is group-behaviour and not gathering or personal behaviour.
10. Group-behaviour does not have an established base.
11. An Oligopolistic does analyze the business behaviour of other participants.
12. According to Adam Smith, labour division depends on the size of the market.

Firm-Created Causes

As mentioned above, the behaviour of Oligopolistic firms is very strategic. Though there is a trend of
decrease of firms in the industry, however, the firms which survive (Survivors) have an increase in their
average size. This because of the strategic practices, which the surviving firms undertake. Either the big
firms purchase small firms or a merger takes. This process increases the size and market share of small
firms and also let them earn more profits being an Oligopolistic. The mutual competition also decreases.

15.5 Summary

• Lipsey has described the Oligopolistic form of market as, “Oligopoly is the theory of an incomplete
competition between firms. It is related to an industry in which there are only a few participants.
Every firm has a market value of such magnitude that it stops it from becoming price-acceptor, but
each firm has to face such inter-firm competitors which stop it from believing that the demand in
the entire market is for that particular firm.”

15.6 Keywords

• Oligopoly: Sway of firms in the industry
• Homogeneous: Equal shaped
• Excess capacity: Having high capacity

15.7 Review Questions

1. What do you understand by oligopoly? Explain.
2. Explain the features of oligopoly.
3. What are the reasons for the emergence of oligopoly?
4. What do you understand by collusive and non-collusive oligopoly?

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