Question

1) Describe Oligopoly market

2) List and explain Pricing Strategies within Oligopoly market

Answer 1

1) The characteristics of Oligopoly market are-

the small number of large firms- An industry is dominated by a small number of mutually interdependent large firms. No single firms have market control like a monopoly.

Identical or differentiate product- Some oligopolistic markets produce homogeneous products like perfect competition. For example steel, aluminum. Some oligopolistic market produces differentiate products, for example, automobiles, computer.

Barriers to entry- In oligopoly market the most entry barriers are i) exclusive resource ownership ii) patents and copyrights iii) high start-up cost iv) other government restriction. Though barrier to entry is less strict than monopoly.

2) Pricing strategies within oligopoly market-

Pricing in oligopoly focus on strategic interaction. They make decisions based on how their competitors are likely to react. Each firm must take into account the expected reaction of other firms to its profit maximizing output decisions. Implicit price collusion exists in oligopoly when multiple firms make the same pricing decisions without consulting. Sometimes the most dominant firm takes the lead in setting prices and other firms follow.