Table of Contents
2. Oligopoly: Some concepts and definitions
There are different types of market orientation in different geographies and for different products or verticals. It can be perfect competition or monopolistic or may be a duopoly. But in the reality, probably the most important and common nature of competition and the market structure is “Oligopoly“, which can also be defined as “Competition among the Few”.
So, setting prices independently is very rare or almost non-existent in the oligopolistic markets. Some kind of understanding between the firms arises, may be either in the form of a formal agreement or even in a tacit way. A formal agreement is one when the oligopolists agree after discussion to observe certain common rules of conduct in regard to price and output determination. So this kind of an oligopolistic situation is generally termed as Collusive Oligopoly. But more often we find that the agreement between the firms is a tacit one, as in most of the countries a formal or open agreements to form monopolies are illegal.
Under oligopoly, a firm can not assume that its rival will keep their prices unchanged when it makes change in its own price. So the demand curve facing an oligopolists looses its definiteness and as well as its own significance. It goes on constantly shifting as the rivals change their prices in reaction to the price changes by that firm.
SOME CONCEPTS AND DEFINITIONS
Oligopoly: An economic condition in which a small number of sellers exert control over the market price of a commodity.
Cartels: In a Cartel type of collusion, firms jointly fix a price and output policy through agreements. Basically, the term ‘cartel’ was used for the agreement in which there existed a common agency which alone undertook the selling operations of all the firms that were party to the agreement. But now-a-days all types of formal and informal agreements reached among the oligopolistic firms of an industry are known as Cartels.
NON COLLUSIVE OLIGOPOLY:
1. Common characteristics of non-collusive oligopoly is that they assume certain pattern of reaction of competitors, in each period and despite the fact that the expected reaction does not in fact materialize , the firm continue to assume that the initial assumption holds.
2. In other words, Firms are assumed never learn from past experience which makes their behavior at least naïve.
Working of oligopoly:
1. Market Sharing by Non Price Competition: Here only a uniform price is set and the member firms are free to produce and sell amount of outputs which will maximize their individual profits. Though the firms agree not to sell products below a certain floor level, but they are free to vary the style of their products and advertising expenditure and to promote sales in the other ways. 2. Market Sharing by Quota: Here the member firms agree regarding the quota of output to be produced and sold by each of them at the agreed price. It is worth mentioning that the all types of cartels are unstable, when there exists cost difference between the firms. The low cost firms always have the tendency to reduce the price of the product to maximize their profits which ultimately result in the collapse of the collusive agreement. Again, if the entry of the firms in the oligopolistic industry is free, the instability of the cartels is intensified as the new entrants may not join the cartel and may fix a lower price of the product to sell a larger quantity. This means that the stability of the cartel agreement is always in danger.
Oligopoly in Telecom sector (INDIA)
India’s telecom sector has made rapid progress since the announcement of the National Telecom Policy – 1999 (NTP-1999). Since 2000, the telecom sector has been a key contributor...