Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsMarket5 Marks
Question
Explain: Characteristics of Oligopoly.
✓
Answer
Characteristics of oligopoly:
$1.$ Few sellers and numerous buyers:
Under oligopoly, the number of sellers and producers is less in the market.
There exists about two to less than ten or twenty firms in the market.
Owing to these circumstances, a few number of sellers have a monopoly control over the market.
On the other hand, there are numerous buyers in such market. So, neither these buyers have much influence on the market price nor they are given much importance.
$2.$ Similar or substitutable products:
Firms sell identical or substitute products in oligopoly. This also means that when the firms in a market, produce and sell identical or substitute products, it is Oligopoly market. For example, products like salt, crude oil, tea, etc.
When producers produce identical products there exists imperfect oligopoly in the market. For example, oligopoly exists for products like cold drinks, motorcycle, etc.
$3.$ Admittance of firms:
In the market of oligopoly, the entry and exit of firms is free or regulated according to the type of oligopoly followed.
If there is free oligopoly in the market, the firms can freely enter or exit the market, whereas if the oligopoly is restricted, then the entry and exit of firms is regulated.
$4.$ Selling cost:
Expense incurred to sell a product is called the selling cost of that product.
Selling cost includes expense incurred on packing, making the product attractive, sales tax, transportation, showroom expenses, money spent for selling, prizes, gifts, advertisement cost, etc.
There is extreme competition in oligopoly. So, the selling cost becomes an important factor of the market.
The seller tries to attract the consumers by incurring various selling expenses.
Selling cost creates product difference in the market which then gives a particular identity to a product.
For example, companies manufacturing mobile phones, television, cars, soaps, etc. try to create unique identity through selling costs.
$5.$ Interdependence:
Under oligopoly the number of setters or producers is very few so they strive to gather information about other setters or producers. Setters compete on the basis of price or product, they decide price or variety based on the actions of their competitors. This is called interdependence In oligopoly market there are very few sellers and producers. So, the sellers or producers can easily gain important information about other sellers or producers.
The sellers and producers then pay special attention on the quality and type of the product to compete with other similar products and attract consumers. For example, producers and sellers of television, car, etc. follow similar practices of discount, features, etc.
The firms decide price, quality or type of its product, based on the behaviour of the competitors and so they are interdependent.
$6.$ Price stickiness $($Kinked Demand Curve$):$
There are a number of theories o Oligopoly. The Kinked-domand theory is one of them.
Price stickiness is a situation where in the firm would tend to stick to the price of its product and not increase or decrease it even if he wish to.
In oligopoly market, the number of firms is less and they are interdependent on each other.
Even if onc of the firm decreases the price of a product, its product
Even if on of the firm decreases the price of a product, its product will become cheaper than other products. So, according to the law of demand due to comparatively cheaper price of the product its demand will be more compared to the product of other firms. This will result in decroaseing the demand of the products sold by other firms.
In order to avoid such situation, the competitive firms will also have to decrease ihe price of their product in order to stay in the competition.
At the end, the price of the product reaches at a nominal level and ¡t becomes impossible to reduce the price lurther.
Sticky prices, therefore, are prices in an economy which are resistant to change.
On the other hand, if the firm increases the price of the product then the demand of that product decreases, and the competitive firms are profited. Thus, as the nominal price is resistant to change, the demand curve hecomes kinked.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.