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Questions
Elaborate three main features of an oligopoly form of market.
State any one feature of oligopoly.
Solution
The following are the features of Oligopoly:
- Few Large Firms: There exist few but large and dominating firms. These firms account for the majority of market supply, thereby controlling the market price and quantity of the output.
- Mutual Dependence: There exists a very high degree of mutual interdependence between the firms in an oligopoly market. The price and the quality decisions of a particular firm are dependent on the price and the quality decisions of the rival (other) firms. Hence, a firm must take into consideration the probable rival reactions, while formulating its own price and output decisions.
- Restricted Entry: As there exists cut-throat competition among the firms, it is very difficult for any new firm to enter into the industry. Moreover, as the existing firms are the only giants in the market, it narrows the scope for a new entrant to enter the industry due to the high cost associated with the entry.
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