Features (Characteristics) of Firms under oligopoly
- Few firms of varying sizes, that is some firms are large and well established while others are small and not well established.
- Close interdependence among firms. Each firm is concerned with the activities and decisions made by other firms so as to make a right reaction. Any decision made by one firm, leads to a counter decision by other firms. For example, when one firm increases the price other firms may not increase, but when it reduces the price, other firms may also reduce
- Intensive advertisement. Under oligopoly, there is a lot of advertisement and failure to advertise means loss of consumers (customers) and a sign of weakness. Advertisement is done through the media, trade shows, giving free samples etc.
- There is no unique pattern of pricing, This is because each firm wants to remain independent so as to maximize profits.
- There is stiff (cut throat) competition among firms. That is each firm acts in such a way to out compete other firms. This brings about intensive advertisement.
- There is existence of price rigidity. Prices under this market structure tend to be stable or rigid for a long time despite the changes in the costs of production.
- The major aim of the firms is profit maximization, Firms produce in such a way to maximize profits and minimize costs.
- Firms are price makers. That is, they have control over the prices of their brands.
- There is existence of product differentiation under imperfect oligopoly and production of homogeneous products under pure oligopoly.
- There is high degree of uncertainty among firms. That is, the decisions made by one firm may, lead to unexpected reactions by other firms. For example when one firm reduces the price, it is not aware of how other firms will react.
- There is restricted entry. It is difficult to enter into this industry because of the large size of the already existing firms and huge capital required to enter into the industry.
- Firms have a kinked demand curve. The demand curve is elastic above the kink and is inelastic below the kink.
- There is wide spread use of non-price competition. Non price competition refers to a situation where rival firms compete by using other means other than changing (adjusting) the price of the commodity. For example use of advertisement, carrying out after sales promotion, sponsoring games and sports etc.
CATEGORIES Economics
TAGS Dr. Bbosa Science
