Question

list and describe 4 characteristics of an oligopolistic market structure

Answer 1

Following are the characteristics of an oligopolistic market structure

(a) Interdependence: If a small number of sizeable firms constitute an industry and one of these firms starts advertising campaign on a big scale or designs a new model of the product which immediately captures the market, it will surely provoke countermoves on the part of rival firms in the industry.

(b) Competition: Since under oligopoly, there are a few sellers, a move by one seller immediately affects the rivals. So each seller is always on the alert and keeps a close watch over the moves of its rivals in order to have a counter-move. This is true competition, “True competition consists of the life of constant struggle, rival against rival, whom one can only find under oligopoly.

(c) Barriers to entry of firms: The entry is restricted in oligopoly market, these barriers can be natural or artificial. These barriers help in earning supernormal profit in long run.

(d) Group Behavior: In oligopoly, the most relevant aspect is the behaviour of the group. There can be two firms in the group, or three or five or even fifteen, but not a few hundred. Whatever the number, it is quite small so that each firm knows that its actions will have some effect on other firms in the group. In contrast, under perfect competition there are a large number of firms each attempting to maximise its profits.