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Pricing Under Oligopoly 
Prepared by 
Dr. K.V.Sasidhar
Pricing Under Oligopoly 
• Oligopoly Meaning: 
• Oligopoly has been derived from two Words 
oligi and pollien. 
• ‘Oligi’ means a ‘few’ and ‘Pollien’ means 
‘sellers’.
Oligopoly 
Definition 
Oligopoly is defined as a market 
situation in which there are a few 
sellers or producers dealing in either 
the homogeneous or differentiated 
products.
Classification of Oligopoly 
Oligopoly market can classified on following bases. 
1) Nature of product: 
on the basis of nature of products, Oligopoly is Classified as 
Pure and differentiated oligopoly. 
a) Pure oligopoly is one in case of which the product produced 
by the competing firms in the market is identical or 
homogeneous. 
a) Differentiated oligopoly is supposed to exist in the market, 
when the firms in the market produce and sell the non-homogeneous.
Classification of Oligopoly 
2. Entry of firms: On the basis of freedom of entry 
Oligopoly Market classified as ‘open’ and ‘Closed’ 
oligopoly. 
a) Open oligopoly: when the new firms are allowed 
to enter in to the market. It is called open 
oligopoly. 
b) Closed oligopoly: when the new firms are not 
allowed to enter in to the market. It is called 
open oligopoly.
Classification of Oligopoly 
3. Price leadership: 
Based on Price leadership the oligopoly can be 
classified as ‘Partial’ and ‘Full’ oligopoly. 
a) Partial oligopoly: when a large firm in the market 
is recognized as price leader, the other smaller 
firms in the market follow the price fixed by the 
leader firm. 
b) Full Oligopoly: Where there is no leading firm to 
determine the price of a product in the market. 
The firm may be engaged in price competition in 
the case of full oligopoly.
Classification of Oligopoly 
4) Agreement or Collusion: 
The oligopoly market can be classified as ‘Collusive’ or 
‘Non collusive’ on the basis of agreement or collusion 
among firms in the market. 
a) Collusive Oligopoly: When different firms in the 
oligopoly market have some informal or formal 
agreement about price, output, division of market, 
profit sharing etc. 
b) Non Collusive Oligopoly: When there is no 
agreement or collusion among the firms.
Classification of Oligopoly 
5) Degree of Co-ordination: On the basis of degree 
of co-ordination the oligopoly market can be of the 
types of ‘Organized’ and ‘Syndicated’ oligopoly. 
a) Organized oligopoly: When the different firms 
in the market avoid price competition by 
organizing themselves into a central association 
for fixing price, output quotas etc. 
b) Syndicated oligopoly: All the firms in the market 
crate a syndicate or cartel which is a common 
selling organization for the sale of output 
turned out by all firms.
Characteristics of Oligopoly 
1. Few Sellers 
2. Control over supply 
3. Inter-dependence of firms 
4. Conflicting attitudes of firms. 
5. Lack of uniformity of size of firm 
6. Group behavior 
7. Advertising and selling costs 
8. Price rigidity 
9. Intense Competition 
10.Indeterminateness of demand curve
Non- Collusive Oligopoly Models 
1) Augustin Cournot’s Model 
2) Bertrand’s Model 
3) Edgeworth’s Model 
4) Stackelberg,s Model
Augustin Cournot’s Model 
Oligopoly was made by the French economist 
Augustin Cournot in 1839. is model rests upon 
the following main assumptions: 
1. There are Two firms in the market, A and B 
2. Each Firm owns the spring of mineral water 
which is identical. 
3. The cost of production is zero 
4. Each firm is faced with a linear, negatively 
sloping market demand curve.
Assumptions Continued….. 
5. The productive capacity of each firm is unlimited. 
6. Each firm considers itself to be independent in 
determining its price or output. It means the mutual 
interdependence is ignored. 
7. Each firm assumes that the supply of rival firm will 
remain unchanged. 
Given the Set of assumptions, when ultimately long run 
equilibrium determined, each firm will share the market 
equally. Price will be zero because of zero cost of 
production and the long run equilibrium under perfect 
competition. 
The model is explained through Fig.
Oligopoly
Oligopoly
Thank You

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Oligopoly

  • 1. Pricing Under Oligopoly Prepared by Dr. K.V.Sasidhar
  • 2. Pricing Under Oligopoly • Oligopoly Meaning: • Oligopoly has been derived from two Words oligi and pollien. • ‘Oligi’ means a ‘few’ and ‘Pollien’ means ‘sellers’.
  • 3. Oligopoly Definition Oligopoly is defined as a market situation in which there are a few sellers or producers dealing in either the homogeneous or differentiated products.
  • 4. Classification of Oligopoly Oligopoly market can classified on following bases. 1) Nature of product: on the basis of nature of products, Oligopoly is Classified as Pure and differentiated oligopoly. a) Pure oligopoly is one in case of which the product produced by the competing firms in the market is identical or homogeneous. a) Differentiated oligopoly is supposed to exist in the market, when the firms in the market produce and sell the non-homogeneous.
  • 5. Classification of Oligopoly 2. Entry of firms: On the basis of freedom of entry Oligopoly Market classified as ‘open’ and ‘Closed’ oligopoly. a) Open oligopoly: when the new firms are allowed to enter in to the market. It is called open oligopoly. b) Closed oligopoly: when the new firms are not allowed to enter in to the market. It is called open oligopoly.
  • 6. Classification of Oligopoly 3. Price leadership: Based on Price leadership the oligopoly can be classified as ‘Partial’ and ‘Full’ oligopoly. a) Partial oligopoly: when a large firm in the market is recognized as price leader, the other smaller firms in the market follow the price fixed by the leader firm. b) Full Oligopoly: Where there is no leading firm to determine the price of a product in the market. The firm may be engaged in price competition in the case of full oligopoly.
  • 7. Classification of Oligopoly 4) Agreement or Collusion: The oligopoly market can be classified as ‘Collusive’ or ‘Non collusive’ on the basis of agreement or collusion among firms in the market. a) Collusive Oligopoly: When different firms in the oligopoly market have some informal or formal agreement about price, output, division of market, profit sharing etc. b) Non Collusive Oligopoly: When there is no agreement or collusion among the firms.
  • 8. Classification of Oligopoly 5) Degree of Co-ordination: On the basis of degree of co-ordination the oligopoly market can be of the types of ‘Organized’ and ‘Syndicated’ oligopoly. a) Organized oligopoly: When the different firms in the market avoid price competition by organizing themselves into a central association for fixing price, output quotas etc. b) Syndicated oligopoly: All the firms in the market crate a syndicate or cartel which is a common selling organization for the sale of output turned out by all firms.
  • 9. Characteristics of Oligopoly 1. Few Sellers 2. Control over supply 3. Inter-dependence of firms 4. Conflicting attitudes of firms. 5. Lack of uniformity of size of firm 6. Group behavior 7. Advertising and selling costs 8. Price rigidity 9. Intense Competition 10.Indeterminateness of demand curve
  • 10. Non- Collusive Oligopoly Models 1) Augustin Cournot’s Model 2) Bertrand’s Model 3) Edgeworth’s Model 4) Stackelberg,s Model
  • 11. Augustin Cournot’s Model Oligopoly was made by the French economist Augustin Cournot in 1839. is model rests upon the following main assumptions: 1. There are Two firms in the market, A and B 2. Each Firm owns the spring of mineral water which is identical. 3. The cost of production is zero 4. Each firm is faced with a linear, negatively sloping market demand curve.
  • 12. Assumptions Continued….. 5. The productive capacity of each firm is unlimited. 6. Each firm considers itself to be independent in determining its price or output. It means the mutual interdependence is ignored. 7. Each firm assumes that the supply of rival firm will remain unchanged. Given the Set of assumptions, when ultimately long run equilibrium determined, each firm will share the market equally. Price will be zero because of zero cost of production and the long run equilibrium under perfect competition. The model is explained through Fig.