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Chapter: 11th 12th std standard Indian Economy Economic status Higher secondary school College

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Characteristics of Oligopoly

Oligopoly refers to a form of imperfect competition where there will be only a few sellers producing either homogenous or differentiated products.

Oligopoly

 

Oligopoly refers to a form of imperfect competition where there will be only a few sellers producing either homogenous or differentiated products.

 

Characteristics of Oligopoly

 

1.        Interdependence: The most important feature of oligopoly is interdependence in decision - making. Since there are a few firms, each firm closely watches the activities of the other firm. Any change in price, output, product, etc., by a firm will have a direct effect on the fortune of its rivals. So an oligopolistic firm must consider not only the market demand for its product, but also the possible moves of other firms in the industry.

 

2.        Group Behaviour: Firms may realise the importance of mutual co-operation. Then they will have a tendency of collusion. At the same time, the desire of each firm to earn maximum profit may encourage competitive spirit. Thus, co-operative and collusive trend as well as competitive trend would prevail in an oligopolistic market.

 

3.     Price Rigidity: Another important feature of oligopoly is price rigidity. Price is sticky or rigid at the prevailing level due to the fear of reaction from the rival firms. If an oligopolistic firm lowers its price, the price reduction will be followed by the rival firms. As a result, the firm loses its profit. Expecting the same kind of reaction, if the oligopolistic firm raises the price, the rival firms will not follow. This would result in losing customers. In both ways the firm would face difficulties. Hence the price is rigid.


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