Question

Define oligopoly. What is unique about oligopolist demand curve? How is price and quantity demanded in this market?

Answer 1

Under an oligopolistic market structure we have a few firms who hold a majority of the market share and hence have considerable bargaining power. Oligopolistic firms are also price makers and there are barriers to entry in such markets and also they use non price competition tactics like advertising to gain market share. An oligiopolist often uses a kinked demand curve model where by firms follow each others price decreases but not price increases. This is unque to an oligpolist. In such a case the demand curve has a kink at that output level beyond which firms will follow price decreases but not price increases. The price is determined in this model based on the interaction between the firms. The concept of the conjectural variation comes into the picture whereby the output of one firms depends on the output of the other firm in the market. The firms can follow a particular type of model be it follower follower or leader follower as the case maybe. Based on these choices the price in a oligopolistic market is attained.