Page 221 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes Oligopolistic firm may form cartel or enter into collusion. There may be barrier to new

entrants.
Theories of oligopoly are divided into three broad groups, namely, models of non-collusive
oligopoly, models of collusive oligopoly, and managerial theories.

The models of non-collusive oligopoly include cournot model, kinked demand curve
model, and other duopoly models.
The collusive oligopoly models have cartel, and price leadership.

There are four important sources of barriers to entry, such as product differentiation,
control of inputs by existing suppliers, legal restrictions and scale economies.

13.6 Keywords

Cartel: A formal collusive organisation of the oligopoly firms in an industry.
Collusive oligopoly: industry containing few producers (oligopoly), in which producers agree
among one
Duopoly: A market situation with two sellers selling homogenous products.
Kinked demand curve: A bend in a standard demand curve that is a result of competitors
decreasing their prices to match each others, but not raising them to achieve the same effect.
Monopoly: A market situation with a single supplier of a particular good or service.

Oligopoly: A situation in which few firms are competing in the market for a particular
commodity.

13.7 Self Assessment

Fill in the blanks:
1. Sweezy’s model is based on the ....................... list approach,
2. An oligopolistic firm is guided in its decisions by the ....................... demand curve.

3. Under oligopoly, a firm expects that when it raises its price, it is most likely that rival fi rms
will also ....................... the price.
4. For an oligopolistic firm, the demand curve is highly ....................... and gradually falling for

prices above the current or existing price,
5. Sweezy’s kinked demand curve model explains the rigidity or stickiness in oligopolistic
prices in the face of short-term increases or decreases in ....................... input costs.

6. The Hall and Hitch model of the Kinked demand curve is based on an empirical survey of

a sample of 38 well managed firms in ....................... .
7. ....................... duopoly model model assumes that his rival firm will keep its price constant

irrespective of his own decision about pricing.
State whether the following statements are true or false:
8. Locational advantages and managerial talents have nothing to do with entry barriers.
9. Price leadership can be seen as collusive oligopoly.

10. Under oligopoly, new entry is easy.

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