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Oligopolistic Market

By: EconomyWatch Date: 14 October 2010

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Oligopoly is a form of market where there is domination of a limited number of suppliers and sellers called Oligopolists. In reality, it is the Oligopoly market which exists, having a high degree of market concentration. This indicates that a huge percentage of the Oligopoly market is occupied by the leading commercial firms of a country. These firms require strategic planning to consider the reactions of other participants existing in the market. This is precisely why an oligopolistic market is subject to greater risk of connivances.

Different theories about Oligopoly Pricing:

4 main theories involved with oligopoly pricing are as follows:

The prices and profits associated with the concept of Oligopoly is impossible to determine, owing to problems arising in modeling mutual prices and output decisions
The oligopolistic business houses join hands in charging the monopoly prices and incur monopoly profits
Oligopoly prices and profits exist between the monopoly and competitive endpoints of the scale
Commercial oligopoly firms compete on the prices in an effort to equalize both the factors like in the competitive industrial sectors.

Distinct features of an oligopolistic market:
An oligopolistic market comprises a handful of firms, engaged in selling analogous products
All oligopolistic markets increase mutual dependence among the firms involved in similar competition. It also prepares businessmen to accept the outcomes arising from rivalries with respect to alterations in the production and prices of goods.
In near future, an oligopolistic market is likely to impose restrictions on admission, in an attempt to incur abnormal profits.
Each of the business houses involved with this market produces branded goods

Relevance of the competition between prices and non-prices:

Price Competition deals with offering discounts on the prices of a particular product or a series of products, in an attempt to generate more market demand of those products. On the other hand, Non-price Competition concentrates on several other strategies to boost up the market shares.

Price leadership: Oligopolistic market

The dominance of one firm in the oligopolistic market results in price leadership. Firms having less market shares only follow the prices fixed by leaders.

Oligopolistic competition: Effects
Oligopolistic competition in most cases leads to collaboration of the business firms on issues like raising the prices of various goods and subdue production process.
Under other given market conditions, the competition between the sellers acquires a violent form, on the grounds of lowering the prices and increasing the production.
Collaboration of various firms also brings about stabilization in the unsteady markets.