How Do Firms behave In Oligopoly?

Oligopoly – Meaning

If the market place of a particular good comprises more than one vendor, and there are just a few vendors, the market system is termed as an oligopoly.

A special scenario of oligopoly where there are exactly two vendors is termed as a duopoly. In scrutinising this market structure, we presume that the commodity sold by the two enterprises is homogeneous and there is no alternative for the commodity manufactured by any other enterprise.

Provided that there are a few enterprises, each enterprise is comparatively large when compared to the size of a market. As an outcome, each enterprise is in a position to influence the total supply in the market and impact the market cost price.

For instance, if the two enterprises in a duopoly are equivalent in size and one of them determines to double its outcome, the total supply in the marketplace will increase considerably, resulting in a decrease in the cost price. This decrease in the cost price influences the profits of all the enterprises in the production industry.

Other enterprises acknowledge such a move in order to protect their own profits by making good decisions concerning the amount to manufacture. Hence, the degree of output in the production industry, the degree of cost prices, and the profits are the results of how enterprises interact with each other. At one point,

  •     Enterprises could decide to conspire with each other to maximise cumulative profits.
  •     In this scenario, the enterprises shape a conglomerate that acts as a monopoly.
  •     The amount supplied cumulatively by the production industry and the cost price incurred are the same as they would have in case of a single monopolist.

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