Characteristics of Oligopoly

Some special characteristics are found in an oligopoly type of market. They are as follows-

Few Sellers

In oligopoly there are few sellers. They are more than two, generally around ten to twenty who compete among themselves and each controls a significant portion of the market demand so that price-out policy of one affects the other. Unlike perfect competition and monopolistic competition. Here the number of sellers are very limited.

Large Number of Buyers

Under oligopoly buyers are large in number. The car market in India is an example of oligopoly. The buyers of Maruti-Suzuki car are very large. Similar is the size of buyers of Tata cars.

Interdependence

There are few sellers of the product under oligopoly. Each firm sells a significant portion of the total output. So every firm influences and is influenced by the action taken by the other firms. Therefore, a firm while taking a decision has to consider the possible reaction of his rivals.

For example, here a firm cannot assume that is rivals will keep their prices unchanged when it changes its own price. So the producers under oligopoly are mutually dependent on one another.

Importance of Advertising and Selling Costs

Under oligopoly an individual firm does not depend on price reduction to increase his share of the market. Because it may result in ‘price-war’, causing harm to all. For example, when one seller reduces the price of his product, the others follow it. But when one increases the price, others may not follow suit. Therefore, under oligopoly the firms employ other methods like advertisement to increase their respective share in the market. Professor Boumol rightly says, “It is only under oligopoly that advertising comes fully into its own.’ So under oligopoly advertising and selling costs are very important.

Competition

Oligopoly refers to competition among a few. Here each firm competes with its rivals ‘tooth and nail’ to get a greater share of the market. The competition under Oligopoly is different from that under perfect competition or under monopolistic competition. Under both perfect competition and monopolistic competition there are large number of firms. So the influence of a single firm is negligible. But under oligopoly, the market consists of a few sellers. The action taken by one immediately affects the other. Therefore competition is more acute under oligopoly.

Group Behaviour

The theory of oligopoly is a theory of group behaviour. It is not a theory of mass behaviour as in case of perfect competition or monopolistic competition. Because in such cases there are large number of sellers. It is also not a theory of individual behaviour as in case of monopoly. Since under oligopoly, we have a group of sellers, it is difficult to find a solution that satisfies all. So there is no single theory of group behaviour under oligopoly.

Indefinite Demand Curve

The demand curve shows the amount of its product that a firm is able to sell at different prices. Under oligopoly the firms are interdependent. Here a firm cannot take independent decisions regarding the price. In other words, here a firm cannot assume that its rivals will not retaliate when it goes for a price change. So the demand curve of an oligopolist goes on shifting every time his rivals make a move. For this, the demand curve of an oligopolist is indefinite or indeterminate.