Oligopolistic Industries Are Characterized By

Definition:

An oligopoly is a market place characterized by a pocket-size number of firms who realize they are interdependent in their pricing and output policies. The number of firms is pocket-size enough to give each firm some market place ability.

Context:

Oligopoly is distinguished from perfect competition considering each business firm in an oligopoly has to take into business relationship their interdependence; from monopolistic competition because firms have some control over cost; and from monopoly because a monopolist has no rivals. In general, the assay of oligopoly is concerned with the furnishings of mutual interdependence among firms in pricing and output decisions.

There are several types of oligopoly. When all firms are of (roughly) equal size, the oligopoly is said to exist symmetric. When this is not the case, the oligopoly is asymmetric. I typical disproportionate oligopoly is the dominant business firm. An oligopoly industry may produce goods which are homogeneous/ undifferentiated or information technology may produce goods which are heterogeneous/ differentiated. The assay of oligopoly behaviour normally assumes a symmetric oligopoly, often a duopoly. Whether the oligopoly is differentiated or undifferentiated, the critical trouble is to decide the way in which the firms act in the face of their realized interdependence.

In general, at that place are two broad approaches to this problem. The first is to assume that firms comport cooperatively. That is, they collude in order to maximize joint monopoly profits. The second is to assume that firms behave independently or not-cooperatively. The analysis of oligopoly behaviour under the non-cooperative assumption forms the footing of oligopoly theory.

Inside non-cooperative oligopoly theory a distinction is made betwixt models in which firms choose quantities and those in which they choose prices. Quantity-setting models are oftentimes referred to equally Cournet models and price-setting models as Bertrand models.

Source Publication:

Glossary of Industrial Organisation Economics and Competition Police, compiled by R. Due south. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.

Statistical Theme: Financial statistics

Created on Thursday, Jan 3, 2002

Concluding updated on Monday, March x, 2003