oligopoly
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OLIGOPOLY
PRESENTED BYAMERESH SETHI
ARPITA GAIKWARDCHETAN CHAVHANDIMPLE RAMNANI
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CONTENTS
• INTRODUCTION • FEATURES• KINKED DEMAND CURVE• CASE STUDY
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INTRODUCTION
• This is a market situation where there are more than 2 producers of a product.
• When there are two producers, it is called duopoly, which is also an imperfect market situation and so a special case of oligopoly.
• The number of producers in oligopoly are lesser than that of perfect competition and monopolistic competition.
• Oligopoly is an actual market situation.
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INTRODUCTION
• When you do a study of the detailed features we can relate to the real life market structures.
• It is an imperfect market with few sellers of similar or differentiated products.
• The few firms in oligopoly enjoy a high degree of market power.
• The market power depends on the number of sellers, barriers to entry and availability of substitutes.
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INTRODUCTION
• Based on these criteria oligopoly enjoys substantial market power,in this market condition, a few firms dominate.
• Based on these criteria oligopoly enjoys substantial market power, in this market condition, a few firms dominate.
• Tyre manufacturers- Dunlop, firestone, dominate.
• Other examples of oligopoly are mobile service providers, breakfast cereal makers etc.
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FEATURES OF OLIGOPOLY
1.Number of producers : There are very few producers in an oligopoly. The market is shared among a few producers. Example of homogeneous products - steel, coal, copper. The producers of these products compete on the basis of differences in product like- different packaging,colour, flavour.2. Huge Investments to Start Oligopoly Industries: Oligopoly markets are dominated by a few large producers and there are substantial barriers to the entry of new producers, though there is freedom of entry.
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FEATURES OF OLIGOPOLY
3.Product Differentiation: The producers in an oligopoly market compete on the basis of product differentiation, which is a distinguishing feature of oligopoly.4. Advertising : In oligopoly market situation, the producers are forced to advertise their product . Aggressive advertising measures are undertaken with a view to capture the market share. In fact, the producers compete on these lines rather than resorting to price cutting to attract buyers.
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FEATURES OF OLIGOPOLY
5. Group Behavior and interdependence :
6. The oligopolistic faces an indeterminate demand curve: There is a lot of interdependence among the oligopoly producers.
Producer Output Market share
Nokia 8000 40%
Samsung 6500 32.5%
L.G. 5500 27.5%
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KINKED DEMAND CURVE
• The Kinked Demand Curve The demand curve under oligopoly is indeterminate.
• This is due to the interdependence of the oligopoly producers. Let us examine what happens if a producer under oligopoly reduces the price.
• In an oligopoly situation, an oligopolistic can expect three kinds of reactions if the price is lowered .
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KINKED DEMAND CURVE
• Suppose Nokia reduces its price to Rs. 900. This may increase the sales, depending on the response of the oligopolists. If nobody responds, the oligopolist can go to point D.
• What happens point D? At this point Nokia will be able to sell more hand sets. What will happen to the other companies, Samsung and L.G.?
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KINKED DEMAND CURVE
• But if the prices are reduced it leads to similar reactions from rival forms.
• Various factors have to be considered by a producer , when he goes ahead with the decisions to reduce price spend money on advertising his product or taking investment decisions.
• The firms are involved in strategy making and they have to be alert to the actions of the other competing firms.
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CASE STUDY OF AVIATION INDUSTRY
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