Oligopoly: a market dominated by a few firms
Characteristics of an oligopolistic market:
- Kinked demand curve - it explains why firms are likely to keep prices stable due to the risks and uncertainities associated with price competition. Above P, demand is relatively elastic, this is because firms are unlikely to follow a price increase, therefore if a firm does follow a price increase they will lose market share and some total revenue as customers will simply buy products from competitors who have lower prices. Below P, demand is relatively inelastic, this is because it is assumed that firms will follow a price cut. However, there will be little gain in market share as other firms have followed suit and total revenue may still fall. Hence, illustrates how firms in an oligopolistic market are unlikely to compete through price competition.
- Non-price competition - firms in oligopolistic markets are more likely to compete through non-price competition. Non-price competition: when firms compete by differentiating their products/services by branding, advertising, colour, celebrity endorsement etc.
- Game theory…
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