oligopoly

Topics: Competition, Oligopoly, Game theory Pages: 4 (1116 words) Published: January 8, 2014
Oligopoly Characteristics
Oligopoly is the main form of modern market structure. The term "oligopoly" is used to define a market in which there are few companies, some of which control a large share of the market. In the oligopoly industry some major companies compete among themselves and the introduction of new firms on this market is complicated, because of the presence of barriers to entry. Products manufactured by firms can be both homogeneous and/or differentiated. Homogeneous products have very similar characteristics, while differentiated products have different characteristics, for example different technological specifications or different designs. The examples of homogeneous product of oligopoly industry are Coke and Pepsi and the differentiated products are Boing and Airbus. In general identical products compete only on price, while differentiated products compete on product quality, price and marketing. Small number of firms in an oligopolistic market forces companies to use not only the price but also non-price competition, because it is more effective. The risk for producers is that if they will reduce the price, then their opponents will do the same, which will lead to a decrease in revenue. Therefore instead of the price competition which would be effective in the conditions of the perfect competition, "oligopoly" uses non-price methods of struggle: technical excellence, quality and reliability of products, marketing techniques, the guarantees, payment terms differentiation and advertising. A characteristic feature of an oligopolistic market is the dependence of the behavior of each firm on the reaction and behavior of competitors. The big size and significant capital firms are extremely slow-moving in the market and in these conditions the greatest benefits are promised by arrangement between oligopolistic firms in order to maintain prices and maximize profits. Oligopoly markets have the following characteristics:

• A minor number of...
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