Please enable JavaScript.
Coggle requires JavaScript to display documents.
Unit 5, Oligopoly, Non Collusive Oligopoly Models, Kinked Demand Model,…
-
Oligopoly
An oligopoly is a market structure in which a small number of large firms have all or most of the sales in an industry.
-
Either they can scratch each other badly or can be together, if get comfortable with each other.
-
-
-
Kinked Demand Model
-
1st Assumption:
If a firm decreases the price, others will also do the same. So initially the firms
faces a highly elastic demand curve.
A price reduction will give some gains to the firm initially, but due to similar reaction by rivals, this increase in demand will not be sustained.
2nd Assumption
If a firm increases its price, others will not follow. Firm will loose large
number of customers to its rivals due to substitution effect.
Thus, an oligopolistic firm faces a highly elastic demand curve, in case of price fall and faces highly inelastic demand curve, in case of price rise.
Agreement or Collusion
Collusive Oligopoly
Collusive Oligopoly refers to a form of oligopoly in which the competing firms collude so as to minimize competition and maximize joint profit by reducing the uncertainties arising due to rivalry and selling the goods and service at a monopoly price.
Characterstics
.
The firms cooperate and not compete, with one another with respect to price and output.
-
-
-
Consumers receive fewer price benefits, due to monopoly
-
Non collusive oligopoly
-
-
In a non-collusive or non-cooperative oligopoly, the firms survive in a strategic environment, as they begin with a particular strategy without colluding with competitors.
-
Collusive Models
CARTELS
-
In particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market.
-
Members work together to determine jointly the level of output that each member will produce and/or the price that each member will charge.
By working together, the cartel members are able to behave like a monopolist.
-
-
