27/11/ · An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market. The This essay focuses on the tobacco industry with respect to its oligopolistic market structure. The basic characteristics of the oligopoly are discussed and followed by the identification of the 16/11/ · The definition of an oligopoly states that in an industry, a smallnumber of firms dominate the market. There are a low number of firms in theindustry, becasue and adding to
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Essay 1. Two extreme market forms are monopoly characterised by the existence of a single seller and perfect competition characterised by a large number of oligopoly essay. Competition is of two types- perfect competition and monopolistic competition. In perfect competition, all sellers sell homogeneous products while in monopolistic competition they sell heterogeneous products. In monopoly there is no rival. So the monopolist is not concerned with the effect of his actions on rivals. In both types of competition, the number of firms is so oligopoly essay that the actions of any one seller have little, oligopoly essay, if any, effect on its competitors. An industry with only a few sellers is known as an oligopoly, a firm in such an industry is known as an oligopolist.
Although car-wash is a million rupee business, oligopoly essay, it is not exactly a product familiar to most consumers. However, often many familiar goods and services are supplied only by a few competing sellers, which means the industries we are talking about are oligopolies. An oligopoly is not necessarily made up of large firms. When a village has only two medicine shops, service there is just as much an oligopoly as air shuttle service between Mumbai and Pune. Essentially, oligopoly is the result of the same factors that sometimes oligopoly essay monopoly, but in somewhat weaker form, oligopoly essay. Honestly, the most important source of oligopoly is the existence of economies of scale, which give better producers a cost advantage over smaller ones.
When these economies of scale are very strong, they lead to monopoly, but when they are not that strong they lead to competition among a small number of firms. Each firm must, therefore, recognise that changes in its own policies are oligopoly essay to elicit changes in the policies of its competitors as well. As a result of this interdependence, oligopolists face a situation in which the optimal decision of one firm depends on what other firms decide to do. And so there is opportunity for both conflict and cooperation. Oligopoly refers to a market situation in which the number of sellers is few, but greater than one.
A special case of oligopoly is monopoly in which there are only two sellers. Essay 2, oligopoly essay. An oligopolist is neither a price-taker like a competitor nor a price-maker like a monopolist. It is a price-searcher. An oligopolist is neither a big enough part of the market to be able to act as a monopolist, nor a small enough part of the market to be able to act as a competitor. But each firm is a dominant part of the market. In such a situation, competition among buyers will force all the sellers to charge a uniform price for a product. But each firm is sufficiently so large a part of the market that its actions will have noticeable effects upon his rivals.
This means that if a single firm changes its output, the prices charged by all the firms will be raised or lowered. In oligopoly, oligopoly essay, there may be product differentiation as in monopolistic competition called differentiated oligopoly or a homogeneous product may be traded by all the few dominant firms as in pure oligopoly. In oligopoly no firm can take decision on price independently. It is because the decision to fix a new price or change an existing price will create reactions among the rival firms. If a firm reduces its price its rivals may reduce their prices or they may not.
So there is lack of symmetry in the behaviour of rival firms, oligopoly essay. This type of reaction of rivals is not found in perfect competition or monopolistic competition where all firms change their price in the same direction and by oligopoly essay same magnitude in order to remain competitive and survive in the long run. For this reason it is difficult to predict the total demand for the product of an oligopolistic industry. It is true that the consequences of attempted price variations on the part of an individual seller are uncertain. His rivals may follow his change, or they may not, but they will, in all likelihood, notice it. The results of any action on the part of an oligopolist or even a duopolist depend upon the reactions of his rivals.
In short, it is not possible to define general price- quantity relations for an individual firm, since reaction patterns of rivals are highly uncertain and almost completely unknown. Oligopoly essay is not true to say that, in oligopoly, profit is always maximised, oligopoly essay. It is because an oligopolist does not have control over all the variables which affect his profit. Moreover, a variety of possible reaction patterns is possible in this market—there is a conjectural variation in this market. This is why various models oligopoly essay used to describe the diverse behaviour of oligopoly markets where a variety of outcomes is possible.
As in monopolistic competition there is not only price competition but non-price competition as well in oligopoly and, to some extent, in duopoly. For example, advertising is often a life and death question in this type of market due to strategic behaviour of all firms. In most oligopoly situations we find intermediate outcomes, oligopoly essay. Economists are yet to emerge with a definite behaviour pattern in oligopoly. Essay 3. Here we study a few of the many possible reaction patterns in duopoly oligopoly essay oligopoly situations. The focus is on pure oligopoly, oligopoly essay. Here we assume that all firms produce a homogeneous product.
We do not discuss the case of differentiated oligopoly and the issue of selling cost advertising separately. The optimum quantity and maximum profit of a duopolist or oligopolist depend upon the actions of oligopoly essay firms belonging to the industry. He can control only his own output level or price, if his product is differentiatedoligopoly essay, but he has no direct control over other variables which are likely to or do affect his profits. In truth, the profit of each oligopolist is the result of the interaction of the decisions of all players in the market. Since there are no generally oligopoly essay behavioural assumptions for oligopolists and duopolists as is found in other market forms, there are diverse patterns of behaviour and many different solutions for oligopolistic and duopolistic markets.
Each solution is based on oligopoly essay types of models and each model is based on a different behavioural assumption or a set of assumptions. Here we start with one or two simple duopoly models. The same analysis solution can be extended to cover any oligopolistic market. The earliest model of duopoly behaviour is the Cournot model, with which we may start our review of different oligopoly models. We end with the game theoretic treatment of oligopoly essay which shows decision-making under conflict. Essay 4. Models of Oligopoly essay 1. The Cournot Model : The Cournot model presented in is based on the analysis of a market in which two firms produce a homogeneous product.
Augustin Cournot a French economist noticed that oligopoly essay two firms were producing mineral water for sale. He argued that each firm would choose quantity that would maximise profit, taking the quantity marketed by its competitor as given. Oligopoly essay we assume that firms produce a homogeneous good and know the market demand curve. Each firm must decide how much to produce, and the two firms make their decisions at the same time, oligopoly essay. When taking its production decision, oligopoly essay, each duopolist takes into consideration its competitor. It knows that its competitor is also deciding how much to produce, and the market price will depend on the total output of both firms. The essence of the Cournot model is that each firm treats the output level of its competitor as fixed and then decides how much to produce.
In Fig. In order to sell Q M plus Q cthe price must fall to P 1. Here Q M is the monopoly output which is half the competitive output Q c, oligopoly essay. The inverse demand function, oligopoly essay, stating price as a function of the aggregate quantity sold, is expressed as:. where q 1 and q 2 are the output levels of the duopolists, oligopoly essay. The total revenue of each duopolist depends upon his own output level as also as that of his rival:. The profit of each equals his total sales revenue, less his cost, which depends upon his output level above:. The basic behavioural assumption of the Cournot model is that each duopolist maximises his profit on the assumption that the quantity produced by his rival is invariant with respect to his own decision regarding output quantity.
Duopolist I maximises π 1 with reference to q 1treating q oligopoly essay as a parameter, and duopolist II maximises π 2with reference to q 2treating q 1 as a parameter. Setting the partial derivatives of 3 equal to zero, oligopoly essay, we get:. The first order necessary condition of profit-maximisation requires that each duopolist equates his oligopoly essay cost to his marginal revenue. The second order sufficient condition of each duopolist requires that. The slope of the marginal revenue curve of each duopolist must be less than that of the marginal cost curve, oligopoly essay.
Unlike the two-cost monopolist, where a single individual controls the value of both output levels, in the Cournot model each duopolist maximises his profit with reference to a single variable under his control. This simply implies that the marginal revenues of the duopolists are not necessarily the same. Since oligopoly essay demand curve is downward sloping the duopolist with the greater output will have the smaller marginal revenue because a duopolist has to reduce price to sell more. The Cournot solution is simple enough. In this model, the duopolist market is in equilibrium if the values of q 1 and q 2 are such that each duopolist maximises his profit, taking the output of the sole rival as a parameter, and neither desires to change his output level.
Thus, there is no conjectural variation in this model. The optimum solution equilibrium condition can be found out in this model by solving 3 for q 1 and q 2 if 4 is satisfied. At this stage we have to introduce an additional step to get a more complete oligopoly essay of duopoly. The reaction function of duopolist I gives a relationship between q 1 and q 2 with the property that, for any specified value of q 2the corresponding value of q 1 oligopoly essay p 1, oligopoly essay. An equilibrium solution here is a pair of values for q 1 and q 2 which satisfy both reaction functions.
Since the parameters B, b 1 q 1 and b 2q 2 are all positive, an increase in output of either duopolist will lead to a fall in the other optimum profit-maximising output. The reaction functions are linear as shown in Fig. An equilibrium is found out by solving 7or by the intersection point E of the two reaction curves point E in Fig. The second-order sufficient conditions are satisfied by the linear demand and quadratic cost functions:. However, this need not necessarily be true, oligopoly essay.
5 Key Points about Oligopoly I A Level and IB Economics
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16/11/ · The definition of an oligopoly states that in an industry, a smallnumber of firms dominate the market. There are a low number of firms in theindustry, becasue and adding to This essay focuses on the tobacco industry with respect to its oligopolistic market structure. The basic characteristics of the oligopoly are discussed and followed by the identification of the 27/11/ · An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market. The
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