Key Attributes of Oligopoly
- Interdependence
The interconnectedness of the numerous enterprises in decision-making is the most prominent feature of oligopoly.
Key Attributes of Oligopoly: All enterprises in an oligopolistic industry are aware of this reality. If an industry is made up of a limited number of large corporations, and one of these firms launches a large-scale advertising campaign or develops a new product model that rapidly grabs the market, competitor firms in the sector will undoubtedly respond with countermoves.
As a result, various businesses are heavily reliant on one another.
- Advertising
A big policy change by one business is likely to have rapid consequences on other companies in the sector under an oligopoly. As a result, competitor businesses are always on the lookout for actions by the company that takes the initiative and initiates policy adjustments. In the hands of an oligopolist, advertising is therefore a potent tool. In an oligopolistic market, a company may launch an aggressive advertising campaign with the goal of capturing a big portion of the market. Other companies in the business will undoubtedly oppose its defensive marketing.
Advertising is superfluous under perfect competition, but it may be advantageous for a monopolist when his product is new or when there are a big number of prospective customers who have never tried his product before. “Under oligopoly, advertising may become a life-or-death issue,” says Prof. Baumol, “where a business that fails to keep up with its rivals’ advertising spend may find its clients migrating away to rival goods.”
- Group Dynamics
The behaviour of the group is the most important factor in oligopoly. There might be two, three, five, or even fifteen enterprises in the group, but not a few hundred. Whatever the number is, it is low enough for each business to be aware that its actions will have an impact on the other enterprises in the group. In ideal competition, on the other hand, there are many enterprises all seeking to maximise their earnings.
Under monopolistic competition, the scenario is same. There is only one profit-maximizing enterprise in a monopoly. A firm’s behaviour is often predictable, whether it is a monopoly or a competitive market.
However, under an oligopoly, this is not practicable for a variety of reasons:
- The businesses that make up the consortium may or may not have a similar aim.
- There may or may not be a formal or informal structure with agreed-upon standards of behaviour for the group.
- Although the group may be headed by a single business, the other companies in the group may not all follow him in the same way.
- Competition
Another characteristic of an oligopolistic market is the existence of rivalry. Because there are just a few vendors in an oligopoly, a move by one seller has an instantaneous impact on the competitors. As a result, each seller is always awake and keeps a careful eye on its competitors’ activities in order to prepare a counter-move. “True competition consists of a life of perpetual conflict, competitor against rival, which one can only find under oligopoly,” says the author.
- Firms’ Barriers to Entry
In an oligopolistic industry, there are no obstacles to entrance or departure since there is fierce rivalry. However, certain sorts of entry obstacles tend to deter new businesses from joining the sector in the long term.
Key Attributes of Oligopoly
These might include:
- A few major companies benefit from economies of scale;
- Control of critical and specialised inputs
- Plant expenditures, promotional costs, and other factors all contribute to high capital needs.
- Exclusive patents, as well as licencing, are available.
- The industry is undesirable due to the availability of underutilised capacity.
- The oligopolistic business may achieve long-run supernormal profits when entry is prevented or stopped by such natural and manmade obstacles.
- Lack of Consistency
The lack of homogeneity in business size is another aspect of an oligopoly market. The size of businesses varies greatly. Some may be little, while others may be rather enormous. This is an imbalanced condition. In the American economy, this is fairly prevalent. It’s unusual to have a symmetrical arrangement with enterprises of the same size.
- Price Rigidity’s Existence
In an oligopoly, each business must keep to its own pricing. If one company attempts to lower its price, the other companies will respond by lowering their pricing even more. This will result in a pricing war that will benefit no one. On the other hand, if one business raises its pricing in order to enhance profits, other competitors will not follow suit. As a result, no company wants to lower or raise their prices. Price rigidity will be implemented.
- There is no distinct pricing pattern.
The oligopolists’ competition stems from their interdependence, which leads to two opposing motivations. Everyone wants to be self-sufficient and make the most money possible. To this purpose, they act and respond to one another’s price-output changes, which are a constant source of uncertainty.
On the other side, each seller, driven once again by profit maximisation, desires to collaborate with his competitors in order to lessen or remove the element of uncertainty. Regarding price-output fluctuations, all competitors reach an unspoken or formal agreement.
It creates a monopoly inside an oligopoly. They may even identify one vendor as a leader, prompting all other merchants to increase or drop their prices on his or her initiative. In this situation, the demand curve of the individual seller is a subset of the industry demand curve, with the latter’s elasticity. It is impossible to forecast any distinctive pattern of price behaviour in oligopoly marketplaces because of these opposing viewpoints.
- Demand Curve Unpredictability
In market arrangements other than oligopolistic, a firm’s demand curve is fixed. The oligopolists’ dependency, on the other hand, makes it hard to build a demand curve for such sellers unless the kind of interdependence is properly specified. The demand curve remains uncertain in real-world company operations. When a business in an oligopoly cuts its pricing, it may anticipate at least three potential responses from other vendors.