Oligopoly:

This is a form of market organization in which there are few sellers of a homogeneous or differentiated product. Unlike the other forms of market structure that we have discussed, a firm in Oligopoly makes pricing and marketing decision in light of the expected response by rivals.

Characteristics of Oligopoly:

Few Sellers: A handful of firms produce the bulk of industry output.

Homogeneous or unique product: If product is homogeneous, then we have “Pure Monopoly”. If product is

differentiated, then we have “Differentiated Oligopoly”.

Blockaded Entry and Exit: Firms are heavily restricted from entering or leaving the industry.

Imperfect Dissemination of Information:

Different Measures of Market Concentration:

Concentration Ratios:

This is the percentage of total industry sales of the 4, 8 or 12 largest firms in the industry.

Herfindahl Index:

This is the sum of the squared values of the market shares of all the firms in the industry.

The Kinked Demand Curve Model:

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Price

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Centralized Cartels:

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Price Leadership:

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