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    Price Determined Under Oligopoly

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    This document provides an overview of price determination under oligopoly. It discusses key concepts such as: 1) Oligopoly is defined as a market with a small number of sellers (2-10) of homogeneous or differentiated products. 2) Prices are determined through interdependent pricing decisions as firms monitor and react to competitors. Common approaches include price leadership, price wars, and cartels. 3) The kinked demand curve model suggests firms will match price cuts but not price increases due to an elastic demand above the prevailing price and inelastic demand below it.

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    Price Determined Under Oligopoly

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    ss_love_87
    7K views19 pages
    This document provides an overview of price determination under oligopoly. It discusses key concepts such as: 1) Oligopoly is defined as a market with a small number of sellers (2-10) of homogeneous or differentiated products. 2) Prices are determined through interdependent pricing decisions as firms monitor and react to competitors. Common approaches include price leadership, price wars, and cartels. 3) The kinked demand curve model suggests firms will match price cuts but not price increases due to an elastic demand above the prevailing price and inelastic demand below it.

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    Price Determined Under Oligopoly

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    This document provides an overview of price determination under oligopoly. It discusses key concepts such as: 1) Oligopoly is defined as a market with a small number of sellers (2-10) of homogeneous or differentiated products. 2) Prices are determined through interdependent pricing decisions as firms monitor and react to competitors. Common approaches include price leadership, price wars, and cartels. 3) The kinked demand curve model suggests firms will match price cuts but not price increases due to an elastic demand above the prevailing price and inelastic demand below it.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    7K views19 pages

    Price Determined Under Oligopoly

    Uploaded by

    ss_love_87
    This document provides an overview of price determination under oligopoly. It discusses key concepts such as: 1) Oligopoly is defined as a market with a small number of sellers (2-10) of homogeneous or differentiated products. 2) Prices are determined through interdependent pricing decisions as firms monitor and react to competitors. Common approaches include price leadership, price wars, and cartels. 3) The kinked demand curve model suggests firms will match price cuts but not price increases due to an elastic demand above the prevailing price and inelastic demand below it.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 19
    At a glance
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    The key takeaways are that oligopoly is a market structure with a few dominant sellers producing similar products, and that under oligopoly prices are determined through interdependent pricing, price wars, price leadership or formal agreements between firms.

    Oligopoly is a market structure characterized by a few dominant firms selling either homogeneous or differentiated products. It is described as competition among a few sellers.

    Under oligopoly, prices are determined through interdependent pricing where firms consider how their rivals will react to price changes, price wars where firms try to capture more market share through lowering prices, price leadership where one dominant firm sets prices that others follow, or formal agreements between firms like cartels.

    Price Determined Under

    Oligopoly
    Presented By:-
    Apoorv Goel (06)
    Dhawal Sharma (14)
    Poonam Khurana (38)
    Prehans Singh
    Sourabh Jalan
    Ujjwal
    1
    INTRODUCTION
    The Term “Oligopoly” has been derived from two Greek
    words.
    ‘Oligi’ which means few and ‘Polien’ means sellers.

    Thus Oligopoly is an abridged version of monopolistic


    competition . It is a competition among few big sellers


    each one of them selling either homogenous or
    hydrogenous products.

    2
    Meaning Of Oligopoly

    Oligopoly refers to a market situation where there r a few sellers


    (2 to 10) in a market, selling homogenous or differentiated


    products. Oligopoly is often described as ‘Competition among
    few’.

    When the products of a few sellers are homogenous it is known as


    ‘Pure Oligopoly’ When the products of few sellers are


    differentiated , but close substitutes of each other it is known as
    “Differentiated Oligopoly” .

    3
    What are some examples of
    Oligopoly?
     Automobiles

     Steel

     Soup

     Cereals

    4
    What determines if a market is an
    Oligopoly?
     The concentration ratio

    5
    What concentration ratio constitutes an
    Oligopoly?
     There is no magic number, but if a large percentage of the
    sales are from the 4 largest firms, it’s an Oligopoly

    6
    What is an example of a high
    concentration ratio?
     Out of 151 firms in the aircraft industry the leading 4
    constitutes 79% of total sales

    7
    Characteristics Of Oligopoly

     Few Sellers
     Homogeneous or Differentiated Product
     Interdependence :
     Importance of Advertising and Selling costs
     Price Rigidity
     Restriction to Entry

    8
    HOW PRICES ARE DETERMINED?
     Interdependent Pricing
     Price wars

     Price Leadership

     Formal Agreement : Cartel

    9
    1. Interdependent Pricing

     Some economists have assumed that oligopolistic firms


    ignore interdependence . When interdependence
    disappears from decision making the demand curve
    facing the oligopolistic becomes determinate.

    10
    2. Price Wars
     Some economists assume that an oligopolistic is able to
    predict the counter moves of his rivals, and they provide
    a determinant solution to the price and output problem.
     The objectives of price wars :

    i. To seize the major part of the total sales


    ii.To expand the monopoly power after victory
    iii.To threaten the rivals so that they they accept its
    leadership.

    11
    3. Price Leadership
     Another approach is that the firms in an Oligopoly would
    accept one firm as a leader and would follow him in
    setting prices. Such a leader firm may be dominant or
    low-cost firm producing a very large proportion of the
    total production and having a great influence over the
    market.
     The form of price leadership:

    i. Leadership of dominant firm


    ii.Barometric price leadership
    iii.Exploitative or Aggressive leadership

    12
    4. Formal Agreement : Cartel
     A group of firms that collude to limit
    competition in a market by negotiating and
    accepting agreed-upon price and market
    shares.
     Two models of imperfect cartels:

    i. Joint-Profit Maximizing Cartels


    ii.Market-sharing cartels
    iii.

    13
    Kinked Demand Curve Model
     According to the kinked demand curve hypothesis, the
    demand curve facing the Oligopolistic has a ‘Kink’ at
    the level of the prevailing price. The kink is formed at
    the prevailing price level because the segment of the
    demand curve above the prevailing price level is highly
    elastic and the segment of the demand curve below the
    price level is inelastic.

    14
    Y d

    k
    Pric

    P
    e

    O Q X
    Outpu
    t
    Kinked Demand Curve Under
    Oligopoly
    15
    Game Theory
     A theory of strategy ascribed to a firm’s behavior in
    oligopoly
     What is the Prisoner’s Dilemma?
     - A series of individual choices within a
    small group, each one’s choice effects the
    outcome of the others.

    16
    - An example of the Prisoner’s Dilemma is the
    Payoff Matrix
    -
    Both Sam Sam confesses
    and Bill confess and Bill doesn’t

    Bill confesses Neither Sam


    and Sam nor Bill
    doesn’t confesses 17
    Cournot’s Duopoly Model
     Augustin Cournot, the French economist,
    developed the earliest model of duopoly in
    1838.
     Following assumptions are:

    i. Two sellers
    ii.Prefectly substitute commodity
    iii.Indentical cost
    iv.No entry
    v.Absence of inter-dependence.

    18
    THANK YOU

    19

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