This document discusses oligopoly and duopoly market structures. It defines oligopoly as a market with few firms where there is natural interdependence between firms regarding price and output. Duopoly is defined as a market with two firms producing the same or similar goods. Both oligopoly and duopoly are characterized by high barriers to entry, mutual interdependence between firms, and the ability for firms to engage in collusive behavior. Examples of oligopolies include steel and cell phones. Examples of duopolies include Pepsi and Coke in soft drinks and Airbus and Boeing in commercial aircraft.

1. OLIGOPOLY & DUOPOLY

2. OLIGOPOLY
• The word “oligopoly” comes from the Greek
“oligos” meaning "little or small” and “polein”
meaning “to sell.” When “oligos” is used in the
plural, it means “few” ,few firms or few sellers.
• DEFINATION:
Oligopoly is that form of market where there are
few firms and there is natural interdependence
among the firms regarding price and output
policy.

3. FEATURES
1. Few firms:
In oligopoly there may be few firms varying from 5-7
in number. Each firm produces a big share of total
supply in the market.
2. Mutual interdependence:
there is high degree of mutual interdependence
among the firms regarding price and output policy.
It means price and output policy of one firm affects
the others. All the decisions are taken keeping in
mind possible reactions of the other firms.

4. 3. Collusive or Non-Collusive:
There are 2 types of oligopoly: Collusive or Non-
Collusive.
• In Collusive oligopoly, all the firms decide to
join together and to form a cartel through
mutual agreement and all the decisions are
taken mutually by all of them. Sometimes a
strong and a dominant firm is accepted as ‘price
leader’ and other firms follow that firm.
• In Non-Collusive oligopoly, all the firms
resent in the market, they decide to complete
rather than forming a union or cartel and follow
their own price and output policy.

5. 4. Homogenous or Heterogeneous:
In oligopoly, firms may produce homogenous or
heterogeneous products according to their policy and are
free to determine their prices accordingly.
5. Intermediate shapes of curves:
In oligopoly, shapes of revenue curves cannot be
determined because there are few firms in the market
and all the decisions regarding price and output policy
are taken mutually or through mutual interdependence.
So, it is not possible to predict the reaction of the rival
firm. For ex: if firm A increases the price then firm B
may react in 3 different manners:
i) It may increase the price
ii) It may decrease the price
iii) It may keep the price as it is i.e constant.

6. Oligopoly Is Widespread
Businesses that are part of an oligopoly share some
common characteristics:
• They are less concentrated than in a monopoly, but more concentrated than
in a competitive system.
There is still competition within an oligopoly, as in the case of airlines.
Airlines match competitor’s air fares when sharing the same routes. Also,
automobile companies compete in the fall as the new models come out. One
will reduce financing rates and the others will follow suit.
• The businesses offer an identical product or services.
This creates a high amount of interdependence which encourages
competition in non price-related areas, like advertising and packaging. The
tobacco companies, soft drink companies, and airlines are examples of an
imperfect oligopoly.

7. Examples
• Steel industry
• Aluminum
• Film
• Television
• Cell phone
• Gas

8. • There are four combinations of
strategies possible for these two
firms, and letter cells in the
table below express them. For
example, cell W represents low-
price strategy of firm “B” and
high-price strategy of firm “A”.
This table is called payoff
matrix because its cells
represent the profit(payoff)
each firm makes that result
from combination of strategies
of firms “A” and “B”. Cell W
represents that after firm “A”
chooses to adopt high-price
strategy and firm “B” chooses to
adopt low-price strategy, then
firm “B” will make 4 million
dollars and firm “A” will make
only 1 million.

9. Pros and Cons
• Pro: Prices in an oligopoly are usually lower than in a
monopoly, but higher than it would be in a competitive
market.
• Pro: Prices tend to remain stable because if one
company lowers the price too much, then the others will
do the same. The result lowers the profit margin for all
the companies, but is great for the consumer.
• Con: Output would be less than in a competitive market
and more than in a monopoly. Most competition
between companies in an oligopoly is by means of
research and development (or innovation), location,
packaging, marketing, and the production of a product
that is slightly different than the other company makes.

10. • Con: Major barriers keep companies from
joining oligopolies. The major barriers are economies of
scale, access to technology, patents, and actions of the
businesses in the oligopoly. Barriers can also be imposed
by the government, such as limiting the number of
licenses that are issued.
• Con: Oligopolies develop in industries that require a
large sum of money to start. Existing companies in
oligopolies discourage new companies because of
exclusive access to resources or patented processes, cost
advantages as the result of mass production, and the cost
of convincing consumers to try a new product.
Lastly, companies in oligopolies establish exclusive
dealerships, have agreements to get lower prices from
suppliers, and lower prices with the intention of keeping
new companies out.

11. DUOPOLY
• Two sellers, many buyers. Neither company can behave
as if he has a monopoly because he has to take the other’s
production and pricing policies into account. BUT, the
opportunity is there for an understanding for the duopoly
to limit production, divide markets, and charge
monopoly prices. Examples include: Pepsi and Coke,
Blockbusters and Rogers Video, Airbus and Boeing and,
Sotheby’s and Christie’s n the auction market.
• DEFINITION
A market in which two firms produce all or most of the
market supply of a particular good or service.

12. Example
• The most popular example of duopoly is between
Visa and Mastercard who exercise a major
control over the electronic payment processing
market in the world.
Pepsi and Coca-cola are the two major
shareholders in the soft drinks market. Airbus
and Boeing are duopolies in the commercial jet
aircraft market

17. FEATURES
1. The two firms produce homogeneous and
indistinguishable goods.
2. There are no other firms in the market who
produce the same or substitute goods.
3. No other firms can or will enter the market.
4. Collusive behavior is prohibited. Firms cannot
act together to form a cartel.
5. There exists one market for the produced goods.

18. kinds of duopolies
1.The Cournot duopoly, competition between the two companies is
based on the quantity of products supplied. The duopoly members
essentially agree to split the market. The price each company receives
for the product is based on the quantity of items produced, and the
two companies react to each other's production changes until an
equilibrium is achieved.
2. In a Bertrand duopoly, the two companies compete on price.
Because consumers will purchase the cheaper of two identical
products, this leads to a zero-profit price as the two competitors
attempt to attract more customers (and thus more profit) through
price cuts. The threat of price undercutting means that Bertrand
equilibrium prices and profits are generally lower (and quantities
higher) than in Cournot duopolies.

19. DIFFERENCE & SIMILARITY
D. 1)Oligopoly Industry - Number of
Firms/Producers
Few
Duopoly Industry - Number of Firms/Producers
Two
S. 1) Oligopoly/Duopoly Industry - Products
Different
2) Oligopoly/Duopoly - Entry Barriers
High