Situations which give rise to an oligopoly

Price stability may bring advantages to consumers and the macro-economy because it helps consumers plan ahead and stabilises their expenditure, which may help stabilise the trade cycle. The disadvantages of oligopolies Oligopolies can be criticised on a number of obvious grounds, including: High concentration reduces consumer choice.

Our customers are the enemy.

Oligopoly pricing

Economies of Scale: Another factor responsible for emergence of oligopoly is the large scale firm. If firms do collude, and their behaviour can be proven to result in reduced competition, they are likely to be subject to regulation. Oligopoly is probably the second most common market structure. Your partner in the other room is confessing. This combination of economies of scale and market demand creates the barrier to entry, which led to the Boeing-Airbus oligopoly for large passenger aircraft. Difficulties of Entry into the Industry: Lastly, oligopoly may come to exist because of difficulties of entry into the industry. Kinked demand curve The reaction of rivals to a price change depends on whether price is raised or lowered. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Oligopolies in countries with competition laws[ edit ] Oligopolies become "mature" when they realise they can profit maximise through joint profit maximising. They are not my friend. Prospective entrants to an industry are also deterred by the difficulty of marketing new products or new brands in the presence of already well- established, well entrenched brands. Prisoner B Remain Silent cooperate with other prisoner Confess do not cooperate with other prisoner Prisoner A Remain Silent cooperate with other prisoner A gets 2 years, B gets 2 years A gets 8 years, B gets 1 year Confess do not cooperate with other prisoner A gets 1 year, B gets 8 years A gets 5 years B gets 5 years Table 3.

If there are only two giant firms in an industry and they produce identical products. In some industries, a few firms can meet the entire demand for the product. Hence, it can be regarded as a response to information failure.

assumptions of oligopoly

They are not my friend. Oligopoly is probably the second most common market structure. Thus, the members of a cartel can discipline each other to stick to the pre-agreed levels of quantity and price through a strategy of matching all price cuts but not matching any price increases.

Main article: Cournot competition The Cournot — Nash model is the simplest oligopoly model. Each strategy can be evaluated in terms of: How successful is it likely to be?

oligopoly characteristics

Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately. In Oligopolist cheating, and the incumbent firm discovering this breach in collusion, the other firms in the market will retaliate by matching or dropping prices lower than the original drop.

Even though it is illegal in many parts of the world for firms to set prices and carve up a market, the temptation to earn higher profits makes it extremely tempting to defy the law.

The main motives of mergers include increasing market powers, more resources, economies of scale and market extensions etc.

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Situations Which Give Rise To An Oligopoly Economics Essay