Questions:

1. What are the main characteristics of an oligopoly? Give real world examples.
2. Why could the market for Automobile be said to be oligopolistic?
3. Why do you think that firms choose not to compete on price?
4. What are the main barriers to entry in the Automobile market?

Answer:

Introduction

Economics is one of the widely chosen subjects in the university education. This is because it promises a very bright future and all the countries as well as organizations are in need of the different economic policies so that they are able to deal with their finances accordingly. There are a number of different things which are discussed in this subject and understanding all of those things in a proper manner is a huge task for the students all around the world. The concept that the students face the most difficulty with is the oligopoly form of competition.

What is Oligopoly?

Oligopoly is referred to as one of the most significant forms of the imperfect competition which exists in the market. This kind of a competition occurs when in a market there a few sellers and they are dealing with the same kind of products. This is the kind of a competition which usually comes between the monopolistic competition as well as the monopoly. This kind of a competition is also referred to as the competition within a few different organizations operating in the market. Under this kind of competition the pricing policy of an organization can easily be affected by one of the sellers which are operating in the market. This happens mainly because in this form of a competition only a few sellers are operating and therefore each of the sellers is in a position where they control the overall supply of a particular product. In this situation what happens is that even though some sellers remain differentiated but the number of substitutes remains very close, then also the overall market would be dominated by what is known as an oligopoly.

Market Types of Oligopoly

There are a number of different kinds of oligopolies which exists in the market and based on the different characteristics they can be as follows:

1. Perfect Oligopoly

An oligopoly is said to be a perfect oligopoly when two different organizations offer homogenous products to the different consumers. This kind of a condition is very rare and is not seen very often in the different markets. The steel, aluminum as well as the chemical industries are the ones which are examples of a perfect oligopoly.

2. Differentiated Oligopoly

It is that form of oligopoly wherein the different organizations produce different products which are close substitutes of one another. In this kind of a oligopoly the characteristics of each of the products which are dealt in by the different organization would be more or less the same. The cigarettes, soft drinks and car manufacturing organizations are said to be the most appropriate examples of this kind of an oligopoly.

3. Conniving and non-conniving oligopoly

This kind of an oligopoly is also known as the corporate oligopoly. In this kind of an oligopoly competition the different firms decide as to what the price of a particular product will be. However, when the competition between the different firms is very high then it is known as non- conniving oligopoly.