The term oligopoly can be broken down into two parts to understand its meaning. â€˜Oligoâ€™ means small or few and â€˜polyâ€™ means to sell. Hence together oligopoly can be defined as the market condition where a concentrated number of sellers can exercise control over the industry at a given time.
The term oligopoly in the stream of economics was introduced many years ago in a meeting that included proficient economists and several businessmen. It was done by the president of an immensely expanded company of those times. Ever since oligopoly has played a pivotal role in uplifting and growing the financial conditions of markets in several different countries all over the world.
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Definition of oligopoly
Oligopoly can be described as the market condition wherein a confined number of companies own a significant measure of the market shares. Unlike monopoly where a single firm exercises control over the market, in the case of oligopoly more than one company dominates the current market. The market is shared predominantly between these few companies.
There is no prescribed number of firms that can be considered a limit in case of oligopoly. But the number should low enough that the decisions taken by one of those companies have significant effect or impact on the other. Whenever a market is shared between few selected firms, it is said to be highly concentrated or compact. Although in this condition it is possible for other small companies to operate at the same time.
These definitions are advised for students to learn in college. These must be included in their scope of syllabus since this is how they will understand this topic better. It will also assist them to frame models of oligopoly homework answers correctly. Apart from this students can also get assistance in their academics from online assignment guidance agencies that operate to provide superior quality services to interested students right at the comfort of their home.
Knowing what an oligopoly market really is
Earlier we have learned basic definition of the term oligopoly. The oligopoly can be further defined as the market form where a few chosen numbers of companies has complete control of the prices of the products manufactured by them. Those sellers have full control of establishing the values of their products. These products can be either differentiated, that is, each company can manufacture different goods or homogeneous, that is, all the firms feature in manufacturing the same commodity.
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The features of an oligopoly market can be further explained as we discuss the types of products manufactured by sellers who are included within it.
Whenever companies included within an oligopoly market produces goods that are miscellaneous or differentiated in nature, then the market form is termed as differentiated or an imperfect oligopoly. This may include firms producing commodities like detergent, automobiles, soaps, garments, refrigerators all operating at the same time.
Whenever companies included within an oligopoly market produces goods that are similar in nature. This market form market is called homogeneous oligopoly. This may include similar products like metals such as aluminum, copper, iron, etc.
These distinctions speak of the nature of oligopoly and how it alters along with the changing conditions of the market. Points like these assists greatly in constructing models of oligopoly homework answers and to solve complex problems related to this topic.
Models of oligopoly and their features in brief
There are several models of oligopoly that has been constructed to deal with different market situations. They provide a detailed view of oligopoly and its different natures. These models are categorized below-
This model was introduced by a French mathematician and philosopher Augustin Cournot. He derived the duopoly model, and in doing so, he made few important assumptions.
Firstly Cournot considered two similar mineral springs that are operated by two different owners. Now they sell the mineral water obtained in the same market. This means they are selling the identical mineral water. This assumption made by Cournot syncs with that of a duopoly with the homogeneous products.
The second assumption he made stated that both owners selling mineral water didnâ€™t need any initial cost of production. This was done only to simplify the deduction.
Further, he stated that both the owners consider the demand for their products to be linear.
Lastly, he assumes that each of the sellers works on the condition that neither of them will be affected by the decisions made by one another at any time.
This was Cournotâ€™s duopoly model.
The kinked demand curve differs in many aspects from the traditional or regular demand curve. But each of their nature of downward slope is the only point of similarity between them. The kinked curve can be distinguished by the presence of the discontinuous bend that the traditional demand curve does not possess.
The price leadership model is a method that gives some respite to the companies from the increasing stress of the competition of the price of goods. In an oligopolistic industry, the market price of a commodity is determined by a leading or dominating firm.
This has its own benefits since the profits obtained from the sale of the products consequently add to increment of profit received by all the companies under the same radar.
This model formulated by F.Y Edgeworth has to say that no matter what the decisions are taken by an owner, the output of the rival firm will be unaffected at all times. This means that the rival will charge the same value for a product no matter what alterations he might set.
These are the brief explanations of few of the important models of oligopoly that has been deduced over the years. There are many more of them as well, and an in-depth knowledge of all these models is essential to learn this topic.
They may get quite challenging from time to time because of their complex natures. So students must get additional help to solve their models of oligopoly homework answers. This will bring about flow and accuracy in their construction and will undoubtedly fetch those better grades.