Question

What are the key characteristics of an oligopoly model?

Answer 1

Answer: There are mainly three characterstics of an oligopoly model:

(I) Industry is dominated by small number of large firms: This implied that each firm is relatively large in size compare to the market.Hence, each firm has significant control over market. So firms can take their decisions strategically.

(II) Firms compete over either identical and diffrentiated products: Firms compete over identical product especially if they are compteting on intermediate goods such as petrolium products and raw material for final product industry.

Firms diffrentiate thier product especially by taste and looks of their product. This type of diffrentiation takes place in food indutry and non durable goods.

(III) Industry has significant barriers to the entry: Reasons for entry barriers might be resource controlled, patents, technologocal advancement, significant high fixed cost. If incumbent firm has significant low marginal cost then entry deterrance is likely to happen.