Characteristics of oligopoly as one of the basic market structures

List the basic characteristics of pure monopolymonopolistic competition and oligopoly.

Characteristics of oligopoly as one of the basic market structures

A perfectly competitive market is one in which the number of buyers and sellers is very large, all engaged in buying and selling a homogeneous product without any artificial restrictions and possessing perfect knowledge of market at a time.

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Characteristics of oligopoly as one of the basic market structures

The following are the conditions for the existence of perfect competition: The first condition is that the number of buyers and sellers must be so large that none of them individually is in a position to influence the price and output of the industry as a whole. The demand of individual buyer relative to the total demand is so small that he cannot influence the price of the product by his individual action.

Similarly, the supply of an individual seller is so small a fraction of the total output that he cannot influence the price of the product by his action alone.

In other words, the individual seller is unable to influence the price of the product by increasing or decreasing its supply. Rather, he adjusts his supply to the price of the product. Thus no buyer or seller can alter the price by his individual action. He has to accept the price for the product as fixed for the whole industry.

The next condition is that the firms should be free to enter or leave the industry. It implies that whenever the industry is earning excess profits, attracted by these profits some new firms enter the industry.

In case of loss being sustained by the industry, some firms leave it. Each firm produces and sells a homogeneous product so that no buyer has any preference for the product of any individual seller over others.

This is only possible if units of the same product produced by different sellers are perfect substitutes. In other words, the cross elasticity of the products of sellers is infinite.

No seller has an independent price policy. He cannot raise the price of his product. If he does so, his customers would leave him and buy the product from other sellers at the ruling lower price.

The above two conditions between themselves make the average revenue curve of the individual seller or firm perfectly elastic, horizontal to the X-axis. It means that a firm can sell more or less at the ruling market price but cannot influence the price as the product is homogeneous and the number of sellers very large.

The next condition is that there is complete openness in buying and selling of goods. Sellers are free to sell their goods to any buyers and the buyers are free to buy from any sellers. In other words, there is no discrimination on the part of buyers or sellers.

There are no efforts on the part of the producers, the government and other agencies to control the supply, demand or price of the products. The movement of prices is unfettered.

Every firm has only one goal of maximising its profits. Another requirement of perfect competition is the perfect mobility of goods and factors between industries. Goods are free to move to those places where they can fetch the highest price. Factors can also move from a low-paid to a high-paid industry.

This condition implies a close contact between buyers and sellers. Buyers and sellers possess complete knowledge about the prices at which goods are being bought and sold, and of the prices at which others are prepared to buy and sell. They have also perfect knowledge of the place where the transactions are being carried on.

Such perfect knowledge of market conditions forces the sellers to sell their product at the prevailing market price and the buyers to buy at that price.

If transport costs are added to the price of the product, even a homogeneous commodity will have different prices depending upon transport costs from the place of supply.

Under perfect competition, the costs of advertising, sales-promotion, etc. Perfect Competition vs Pure Competition: Perfect competition is often distinguished from pure competition, but they differ only in degree.

The UK definition of an oligopoly is a five-firm concentration ratio of more than 50% (this means the five biggest firms have more than 50% of the total market share) The above industry (UK petrol) is an example of an oligopoly. Video: Oligopoly: Definition, Characteristics & Examples One of the most interesting market structures we will talk about today is called an oligopoly. Oligopoly is one of four common market structures. The other three are: perfect competition monopoly, and monopolistic competition. The exhibit to the right illustrates how these four market structures form a continuum based on the relative degree of market control and the number of competitors in the market.

The first five conditions relate to pure competition while the remaining four conditions are also required for the existence of perfect competition. That is why, Chamberlin says that perfect competition is a rare phenomenon. A hypothetical model of a perfectly competitive industry provides the basis for appraising the actual working of economic institutions and organisations in any economy.

Monopoly is a market situation in which there is only one seller of a product with barriers to entry of others.

What are the characteristics of a monopolistic market? | Investopedia

The product has no close substitutes. The cross elasticity of demand with every other product is very low.In an oligopoly market structure, there are a few interdependent firms that change their prices according to their competitors Market Structure: Oligopoly.

Cost Theory. Market Structure: Oligopoly. By Prateek Agarwal Last updated Dec 6, Tweet 1. Share 12 +1. Characteristics of an Oligopoly. 1. Interdependence.

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There are a few. There are four basic market structures: perfect competition, monopoly, monopolistic competition and oligopoly. In a perfect competition market structure several firms are present who all produce identical products and are all sold at market price. The entry barriers to this market are low and the only factor determining sales is price.

The UK definition of an oligopoly is a five-firm concentration ratio of more than 50% (this means the five biggest firms have more than 50% of the total market share) The above industry (UK petrol) is an example of an oligopoly.

4 Market Structures In Economics. By. Team Wall Street Survivor - August 1, Generally, there are several basic defining characteristics of a market structure: The commodity or item that is sold and level of differentiation between them.

Characteristics of oligopoly as one of the basic market structures

Oligopoly Market Structure. Oligopoly has its own market structure. According to game theory, the decisions of one firm therefore influence and are influenced by decisions of other firms.

Characteristics Profit maximization conditions An oligopoly maximizes profits. Ability to . Barriers to entry are the key characteristic that separates oligopoly from monopolistic competition on the continuum of market structures.

With few if any barriers to entry, firms can enter a monopolistically competitive industry when existing firms .

Market Structure: Meaning, Characteristics and Forms | Economics