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Non-Competitive Markets — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsNon-Competitive Markets3 Marks
Question
List the three different ways in which oligopoly firms may behave.
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Answer

Oligopoly firms may behave in the following three ways:
  1. Cartel: In order to avoid undue competition, oligopolistic firms may engage in formal agreements or contracts. This will not only allow them to maximise their total profits together, but also capture a significant market portion.
  2. Barriers to the entry and exit of new firms: It may happen that existing firms try to adopt enry-prenting- price which restricts the entry of new firms into oligopoly market. Every producer believes in sales maximisation policy instead of profit maximisation while determining prices.
  3. Advertisement and differentiated product: It may happen that the firms realise that price competition will leave them nowhere and consequently they emphasise more on advertising their products. It will enable them to capture the minds of consumers and indirectly increase their market portion.

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