Page 191 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics Pavitar Parkash Singh, Lovely Professional University

Notes Unit 12: Oligopoly

CONTENTS
Objectives
Introduction

12.1 Characteristics of Oligopoly
12.2 Collusive Oligopoly Models
12.2.1 Cartel

12.2.2 Price Leadership
12.3 Kinked Demand Curve Model of Oligopoly
12.4 Market Structure and Barriers to Entry
12.5 Strategic Behaviour

12.6 Application of Oligopoly
12.7 Summary
12.8 Keywords

12.9 Self Assessment
12.10 Review Questions
12.11 Further Readings

Objectives

After studying this unit, you will be able to:
 State the characteristics of oligopoly
 Explain the concept cartels & collusion
 Discuss the kinked demand curve concept

Introduction

Oligopoly is a situation in which only a few firms (sellers) are competing in the market for a
particular commodity. The distinguishing characteristics of oligopoly are such that neither the
theory of monopolistic competition nor the theory of monopoly can explain the behaviour of an
oligopolistic firm.

12.1 Characteristics of Oligopoly

The characteristics of oligopoly are briefly explained below:
1. Under oligopoly the number of competing firms being small, each firm controls an
important proportion of the total (industry) supply. Consequently, the effect of a change
in the price or output of one firm upon the sales of its rival firms is noticeable and not

186 LOVELY PROFESSIONAL UNIVERSITY