Characteristics of Oligopoly market:
An oligopoly maximizes profits by producing where marginal revenue equals marginal costs in oligopoly characteristics. Oligopolies are price setters rather than price takers. Barriers to entry are high. The most important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. There are so few firms that the actions of one firm can influence the actions of the other firms. Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering market to capture excess profits. Product may be homogeneous (steel) or differentiated (automobiles). The main characteristics of oligopoly are as follows:‑
(1) Number of firms. Small number of firms. Oligopoly is a market structure characterized by a few firms. These handful of firms dominate the industry to set prices.
(2) Interdependence. All firms in an industry are mostly interdependent. Any action on the part of one firm with respect to output, quality product differentiation can cause a reaction on the part of other firms.
Realization of profit. Oligopolists firms are often thought to realize economic profits. Whenever there are profits, there is incentive for entry of new firms. The existing firms then try to obstruct entry of new firms into the industry.
Strategic game. In an oligopolistic market structure, the entrepreneurs of the firms are like generals in a war. They attempt to predict the reactions of rival firms. It is a strategy game which they play.
Related Economics Topics
- Causes of Oligopoly
- What is Oligopoly (oligopoly firms)?
- Price And Output Determination Under Oligopoly
- Price And Output Determination Under Monopolistic Competition Question
- Price leadership Model