What main features are found in oligopolies?
Assumptions of oligopoly
- Four or five firm concentration ratio
- Frequently there are benefits of scale to be had
- Mergers, take-overs and buy-outs are common
- Incentive to collude, i.e. build cartels
a) collusion not limited to price or output - possible to divide markets or limit entrants
b) collusion is most often illegal
c) Collusion often short-lived, as cheating is a strong incentive
d) Overt and tacit collusion
e) Price leader
- Non-collusive oligopolies
a) Non-collusive outcome results often in price rigidity
b) Firms are heavily interdependent and reluctant to engage in head-on competition
c) Non-price competition may result in both new and better goods - or at least the marketing effort will increase perceived quality