Question

1. which example is easier to find? (prefect comp. or oligopoly)
Let me ask this another way. If you were a business, which type of market would YOU rather be competing in?

2.So why is it so important that we identify oligopolistic industries as such?

Answer 1

1. Businesses are generally competing in imperfect market situation (monopoly or oligopoly) as perfectly competitive market are hard to find in real world due to the following reasons -

. Companies do not have perfect information and nor do they sell perfectly same product .there is some sort of difference in all the products

. Demand does not set prices evenly across the market .

Firms rather prefer to compete in oligopoly market structures as in oligopoly market they have advantage to sell their products at different prices unlike perfectly competitive market in which prices are determined by the industry.

Oligopoly market or imperfect market situation is characterized by few or one seller which gives the seller control or greater market share of the product. As a result he can charge a higher price than perfectly competitive market and earn supernormal profits . Also as the entry is limited in the oligopolistic market firms can continue to earn supernormal profits which is the not the case in perfectly competitive market .

2 . It is important to identify the oligopolistic markets as oligopolistic market are characterized by a few sellers selling products to a large number of customers as a result these sellers have a lot of market share and decision by one individual seller has a great effect on another sellers in the market .if one firm decided to cut down it's price other firms price output and profit decisions are greatly effected by this move of the first seller. So it's important for businesses to identify the kind of market which is selling the product to carefully determine what pricing and output decisions to take as it will not only affect other sellers but also the market as a whole.