Download Economics - Oligopoly And Duopoly - Notes - Economics and more Study notes Economics in PDF only on Docsity! OLIGOPOLY AND DUOPOLY But the situation in which there are two monopolists instead of one who share the monopoly power is called Duopoly. The other is when more than two or a few sellers are found in a monopolistic position is called Oligopoly. Important characteristics of an oligopolistic situation are: (a) Every seller can exercise an important influence on the price-output policies of his rivals. (b) Every seller is so influential that his rivals cannot ignore the likely adverse effect on them of a given change in the price-output policy of any single manufacturer. (c) The rival consciousness on the part of the seller of the fact of interdependence is the most important feature of oligopolistic situation. (d) The demand curve under oligopoly is indeterminate, due to the fact that any step taken by his rivals may change the demand curve. (e) The demand curve under oligopoly are more elastic than under simply monopoly and not perfectly elastic as under perfect competition. DUOPOLY Duopoly may be of two types: (a) Duopoly without product differentiation and (b) Duopoly with product differentiation. Duopoly without Product Differentiation Under duopoly the simplest cases will be those selling an identical commodity and there is no product differentiation and there will be collusion between the two. They may agree on a price assign quotas and divide the territory in which each is to market his goods. In case, if, there is no agreement between the two, a constant price war will be the most probable consequence. The important factors to be considered in this context will be the costs and gains in driving out the rival, the relative sizes of the two firms, the demand elasticity and mobility of the purchasers, the promptitude with which the rival reacts to changes in the otherās policy and the extent to which price concession can be kept secret, and so on. Duopoly with Product Differentiation There is no fear of immediate retaliatory measures by the rivals. If one producer changes his price-output policy, there is less danger of price-war. The firm with better products can earn supernormal profits. KINKED DEMAND CURVE In an oligopolistic situation, there are more than two or a few sellers who are able to exercise monopolistic influence. In such a market situation, we generally find that there exists what is called āprice leadershipā. Under price leadership, one firm assumes the role of a price leader and fixes the price of the product for the entire industry. The other firms in the industry simply follow the price leader and accept the price fixed by him and adjust their output to this price. The price leader is generally a very large or a dominant firm. It often happens that price leadership is established as a result of price war in which one firm emerges as the winner.
