Q. Write three characteristics of oligopoly
Answers
Answer:
Few sellers. There are just several sellers who control all or most of the sales in the industry.
Barriers to entry. It is difficult to enter an oligopoly industry and compete as a small start-up company. Oligopoly firms are large and benefit from economies of scale. It takes considerable know-how and capital to compete in this industry.
Prevalent advertising. Oligopoly firms frequently advertise on a national scale. Many Super Bowl, World Series, Wimbledon finals, World Cup finals, NBA finals, and NCAA March Madness advertisements are sponsored by oligopoly firms.
Explanation:
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Few firms
Under Oligopoly, there are a few large firms although the exact number of firms is undefined. Also, there is severe competition since each firm produces a significant portion of the total output.
Barriers to Entry
Under Oligopoly, a firm can earn super-normal profits in the long run as there are barriers to entry like patents, licenses, control over crucial raw materials, etc. These barriers prevent the entry of new firms into the industry.
Non-Price Competition
Firms try to avoid price competition due to the fear of price wars in Oligopoly and hence depend on non-price methods like advertising, after sales services, warranties, etc. This ensures that firms can influence demand and build brand recognition.
Interdependence
Under Oligopoly, since a few firms hold a significant share in the total output of the industry, each firm is affected by the price and output decisions of rival firms. Therefore, there is a lot of interdependence among firms in an oligopoly. Hence, a firm takes into account the action and reaction of its competing firms while determining its price and output levels