Question

Explain the features of Oligopoly.

Explain the concept of oligopoly with any four features

Describe the features of oligopoly.

Answer 1

Meaning:

The term oligopoly is derived from the Greek words ‘Oligo’ which means few and ‘poly’ which means sellers. It is that market where there are a few firms (sellers) in the market producing either a homogeneous product or a differentiated product. For example, mobile service providers, cement companies, etc.

The following are features of oligopoly:

1. Few firms or sellers:
   Under an oligopoly market, there are a few firms or sellers who control the entire supply in the market. Therefore, they dominate the market and have considerable control over the price of the product.
2. Interdependence:
   Under an oligopoly market, the seller has to be cautious with respect to any action taken by the competing firms. If any firm reduces its price, the other firms also follow the same to remain in the competition.
3. Advertising:
   Advertising is a powerful instrument in the hands of oligopolists. A firm under oligopoly can start an aggressive and attractive advertising campaign with the intention of capturing a large part of the market.
4. Entry barriers:
   Like a monopoly, the oligopoly market also has certain entry barriers in the form of government licenses, patents, etc. A firm can exit an oligopoly whenever it wants but it has to face entry barriers.
5. Lack of uniformity:
   All firms in an oligopoly market may not be of the same size in terms of revenue, number of employees, number of buyers/subscribers, office space, etc. Some firms may be big while others might be small.
6. Uncertainty:
   There is a considerable element of uncertainty in this type of market due to different behavior patterns. Rivals may join hands and co-operate or may try to fight each other.