Oligopoly & duopoly

 A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
 Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
 Perfect competition and pure monopoly are very unlikely to be found in the real world.
 In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
 The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
 Monopoly refers to the market situation where there is a
 Single seller selling a product which has no close substitutes.
 Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
 The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
 DEFINATION:
 Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.

1. OLIGOPOLY & DUOPOLY

2. OLIGOPOLY The word “oligopoly” comes from the Greek “ oligos ” meaning "little or small” and “ polein ” meaning “to sell.” When “ oligos ” is used in the plural, it means “ few” ,few firms or few sellers. DEFINATION: Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.

3. FEATURES 1. Few firms: In oligopoly there may be few firms varying from 5-7 in number. Each firm produces a big share of total supply in the market. 2. Mutual interdependence: there is high degree of mutual interdependence among the firms regarding price and output policy. It means price and output policy of one firm affects the others. All the decisions are taken keeping in mind possible reactions of the other firms.

4. 3. Collusive or Non-Collusive: There are 2 types of oligopoly: Collusive or Non-Collusive. In Collusive oligopoly, all the firms decide to join together and to form a cartel through mutual agreement and all the decisions are taken mutually by all of them. Sometimes a strong and a dominant firm is accepted as ‘price leader’ and other firms follow that firm. In Non-Collusive oligopoly, all the firms resent in the market, they decide to complete rather than forming a union or cartel and follow their own price and output policy.

5. 4. Homogenous or Heterogeneous: In oligopoly, firms may produce homogenous or heterogeneous products according to their policy and are free to determine their prices accordingly. 5. Intermediate shapes of curves: In oligopoly, shapes of revenue curves cannot be determined because there are few firms in the market and all the decisions regarding price and output policy are taken mutually or through mutual interdependence. So, it is not possible to predict the reaction of the rival firm. For ex: if firm A increases the price then firm B may react in 3 different manners: It may increase the price It may decrease the price It may keep the price as it is i.e constant.

6. Oligopoly Is Widespread Businesses that are part of an oligopoly share some common characteristics: They are less concentrated than in a monopoly, but more concentrated than in a competitive system. There is still competition within an oligopoly, as in the case of airlines. Airlines match competitor’s air fares when sharing the same routes. Also, automobile companies compete in the fall as the new models come out. One will reduce financing rates and the others will follow suit. The businesses offer an identical product or services. This creates a high amount of interdependence which encourages competition in non price-related areas, like advertising and packaging. The tobacco companies, soft drink companies, and airlines are examples of an imperfect oligopoly.

7. Examples Steel industry Aluminum Film Television Cell phone Gas

8. There are four combinations of strategies possible for these two firms, and letter cells in the table below express them. For example, cell W represents low-price strategy of firm “B” and high-price strategy of firm “A”. This table is called payoff matrix because its cells represent the profit(payoff) each firm makes that result from combination of strategies of firms “A” and “B”. Cell W represents that after firm “A” chooses to adopt high-price strategy and firm “B” chooses to adopt low-price strategy, then firm “B” will make 4 million dollars and firm “A” will make only 1 million.

9. Pros and Cons Pro:  Prices in an oligopoly are usually lower  than in a monopoly, but higher than it would be in a competitive market. Pro:  Prices tend to remain stable  because if one company lowers the price too much, then the others will do the same. The result lowers the profit margin for all the companies, but is great for the consumer.  Con:  Output would be less  than in a competitive market and more than in a monopoly.  Most competition between companies in an oligopoly is by means of research and development (or innovation), location, packaging, marketing, and the production of a product that is slightly different than the other company makes .

10. Con:  Major barriers keep companies from joining  oligopolies. The major barriers are economies of scale, access to technology, patents, and actions of the businesses in the oligopoly. Barriers can also be imposed by the government, such as limiting the number of licenses that are issued. Con: Oligopolies develop in industries that require a large sum of money to start.  Existing companies in oligopolies discourage new companies because of exclusive access to resources or patented processes, cost advantages as the result of mass production, and the cost of convincing consumers to try a new product . Lastly, companies in oligopolies establish exclusive dealerships, have agreements to get lower prices from suppliers, and lower prices with the intention of keeping new companies out.

11. DUOPOLY Two sellers, many buyers. Neither company can behave as if he has a monopoly because he has to take the other’s production and pricing policies into account. BUT, the opportunity is there for an understanding for the duopoly to limit production, divide markets, and charge monopoly prices. Examples include: Pepsi and Coke, Blockbusters and Rogers Video, Airbus and Boeing and, Sotheby’s and Christie’s n the auction market. DEFINITION A market in which two firms produce all or most of the market supply of a particular good or service.

12. E xample The most popular example of duopoly is between Visa and Mastercard who exercise a major control over the electronic payment processing market in the world. Pepsi and Coca-cola are the two major shareholders in the soft drinks market. Airbus and Boeing are duopolies in the commercial jet aircraft market

13. FEATURES 1. The two firms produce homogeneous and indistinguishable goods. 2. There are no other firms in the market who produce the same or substitute goods. 3. No other firms can or will enter the market. 4. Collusive behavior is prohibited. Firms cannot act together to form a cartel. 5. There exists one market for the produced goods.

14. kinds of  duopolies 1.The Cournot duopoly , competition between the two companies is based on the quantity of products supplied. The duopoly members essentially agree to split the  market . The price each company receives for the product is based on the quantity of items produced, and the two companies react to each other's production changes until an equilibrium is achieved.   2. In a Bertrand duopoly , the two companies compete on price. Because consumers  will  purchase the cheaper of two identical products, this leads to a zero-profit price as the two competitors attempt to attract more customers (and thus more  profit ) through price cuts. The threat of price undercutting means that Bertrand equilibrium prices and profits are generally lower (and quantities higher) than in Cournot duopolies.

15. DIFFERENCE & SIMILARITY D. 1) Oligopoly Industry - Number of Firms/Producers Few Duopoly Industry - Number of Firms/Producers Two S. 1) Oligopoly/Duopoly Industry - Products Different 2) Oligopoly/Duopoly - Entry Barriers High