In the oligopoly market structure, a market is run by a small number of firms that together control the majority of the market share. Oligopoly is one of the kinds of Imperfect competition. Such market structure is found when the number of sellers is few.
Oligopoly is a market situation in which the number of sellers dealing in a homogeneous or differentiated product in small.
Features of Oligopoly Market Structure
Following are the main key features of oligopoly market structure:
1. Importance of Advertising and Selling Cost
A direct effect of the interdependence of Oligopolists is that the various firms have to employ various aggressive and defensive marketing weapons to gain a greater share of the market or to maintain their share.
The various firms have to incur a good deal of the cost of advertising and other measures of sales promotion.
Therefore, there is a great importance of advertising and selling costs in an oligopoly market.
It is to be noted that firms in such type of market avoid price-cutting and try to compete on a non-price basis because if they still undercutting one another type of price war will emerge.
Related: 7 Limitations and Types of Macroeconomic Analysis (Explained).
2. Interdependence
The most important feature of oligopoly is interdependence in the decision making of the few firms which comprise the industry.
This is because when the number of competitions is few, any change in price, direct effect on the fortune of the rivals, Who will they retaliate in changing their own prices.
Output or advertising technique as the case may be.
Thus, It is therefore clear that Oligopolistic firms must consider not only the market demand for the industry product but also the reactions of other firms in the industry to any major decisions it takes.
So it’s characteristic of oligopoly mutual interdependence.
3. Group Behaviour
The theory of Oligopoly is a theory of Group behavior, not of mass or individual behavior and to assume profit-maximizing behavior on the Oligopolists part may not be very valid.
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There is a Generally Accepted theory of group behavior. Do the members of a group agree to pull together in the promotion of common interests or will they tighten to promote their individual interest?
Does the group possess any leader? It so how does he get the others to follow him?
Each Oligopolist closely watches the business behavior of the Other oligopolist in the industry and designs his moves on the basis of some assumptions of how very behave or likely to behave.
Related: 8 Key Characteristics of Monopolistic Competition Market Structure.
4. A Small Number of Sellers
Oligopoly is a market in which there are few sellers of a commodity seller are selling a large part of the total supply of the commodity in the market and a seller is in position to affect the price and activities of other firms.
5. Strong Composition
Under this market condition, there is strong competition among various sellers.
Each seller wants to retaliate its price on the basis of the reaction of other sellers.
6. Homogeneous Product
Another important feature is Homogeneous products.
When a producer is producing the Homogeneous product it is said to be Homogeneous Oligopoly.
Related: 6 Main Categories in Classifications of Markets Structure.
7. Heterogeneous Oligopoly
When a few sellers or producers are producing heterogeneous products or differentiated products it is said to be heterogeneous Oligopoly.
8. Barriers to Entry of Firms
Barriers to entry to and Oligopolistic industry arise due to- Huge investment requirement, Most advantage by the existing firm, Brand loyalty, Price cutting.
9. Lack of Uniformity
Another important feature is the lack of uniformity.
The size of the firms is not uniform. Some firms are very large while other firms are very small.
This condition is called an asymmetrical.
10. Price War
Oligopoly firms are always engaged in a price war.
Product differentiation leads to the possibility of the price war.
When any firm cuts the price their firm’s snail doing this same that results in the price war.
11. Demand Curve
Under the demand curve is indeterminate because of the mutual interdependence of the firms and actions or reactions of an individual firm affect other him as well.
Thus, now you know the features of oligopoly market structure.
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