# Oligopoly

Submitted By gauravjain03
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Oligopoly

← Oligopoly Market Characteristics

▪ Few sellers.

▪ Homogenous or unique products.

▪ Imperfect dissemination of information.

▪ Opportunity for above-normal (economic) profits in long-run equilibrium.

← Examples of Oligopoly

▪ Carbonated Beverage Market (Pepsico & Coca Cola), Domestic aviation Industry in India (Few Players like Indian Airlines, Jet airways, Kingfisher).

← In this form of market structure, the number of sellers is few such that a seller can closely watch what his co-selller is doing in terms of his price & output and take that into consideration while doing his own profit maximization exercise.

▪ For instance: Let P = a – bQ be the market demand curve where the market is supplied by two sellers 1 & 2. Then market demand can be expressed as

P = a – b (Q1+Q2). Now firm/seller 1 will define his profit function as

Π = TR –TC = PQ1 – C1 = {a – b(Q1+Q2)}Q1 – C1 .

Thus now with oligopoly, a seller’s profit function includes rival’s output Q2 as given, which was not the case in other forms of market. Similarly it can also include P2 if sellers are competing based on Prices and not on market share

This value of rival’s output (Q2) is arrived at by a seller by looking at how rival was selling in last period. He looks at the quantity or price his rival was selling or charging in last period and assumes (guesses or conjectures) that the rival will continue to do the same in this period and based on this guess about Q2 or P2, he incorporates these Q2 or P2 in his profit function and maximizes his profit and determines his equilibrium quantity (Q1) to be sold and price (P1) to be charged.

The seller does not, however, talk to his...

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