Oligopoly

The term oligopoly is derived from two Greek words, oligos meaning a few, and pollen meaning to sell. Oligopoly is the form of imperfect competition where there are a few sellers in the market, producing either a homogeneous product or producing products, which are close but not perfect substitutes for each other.

1. Monopoly Power: There is an element of monopoly power in oligopoly. Since there are only a few firms and each firm has a large share of the market, it controls the price and output within its share of the market. Thus, an oligopoly has some monopoly power.

2. Interdependence of Firms: Under oligopoly, there are only a few firms, each producing a homogeneous or slightly differentiated product. Since the number of firms is small, each firm enjoys a large share of the market and has a significant influence on the price and output decisions. Thus, there is interdependence of firms. No firm can ignore the actions and reactions of rival firms under oligopoly.

3. Conflicting Attitudes of Firms: Under oligopoly, two types of conflicting attitudes are found in the firms. On one hand, firms realize the disadvantages of mutual competition and desire to combine to maximize their joint profits. This tendency leads to the formation of collusion. On the other hand, the desire to maximize one’s individual profit may lead to conflict and antagonism; the firms clash with one another on the question of the distribution of profits and the allocation of markets. Thus, there is an existence of two opposing attitudes among the firms.

4. Few Firms: In this market, only a few sellers are found. For example, the market for automobiles in India exhibits an oligopolistic structure as there are only a few producers of automobiles. If there are only two firms, it is called a duopoly.

5. Nature of Product: If the firms produce homogeneous products, it becomes pure oligopoly. The firms with product differentiation constitute impure oligopoly.

6. Interdependence among Firms: In an oligopoly market, each firm treats the others as rival firms. For this reason, each firm, while determining the price of its product, takes into account the reaction of the other firms to its own action.

7. Large Number of Consumers: In this market, there are large numbers of consumers who demand the product.