* Managerial Economics Course* Assignment
CASE STUDY: How far does the theory of Oligopoly
Table of contents
2.1 Price fixing in collusive oligopoly
3.0 Conditions conducive for formation of cartels
4.0 Reasons for Possible break-downs of cartels
*5.0 OPEC :* Most successful cartel
Oligopoly is an intermediate form of imperfect competition in which only a
few sellers exist in the market with each offering a product similar or identical
to the others.
Barriers to entry are the factors that make it difficult for new firms to enter an industry
which lead to imperfect competition. Mostly commonly known barriers of entry are
economies of scale, legal restrictions, high cost of entry and advertising and product
Oligopoly usually exhibits the following features:
Entry barriers: Significant entry barriers prevail in the market that thwart the dilution of competition in the long run.This helps dominant firms to maintain
Interdependent decision-making: Interdependence implies that firms must take into account probable reactions of their rivals to any change in price, output or forms
of non-price competition.
Non-price competition: Examples of non-price competition such as free deliveries and installation, longer opening hours ( petrol
stations),branding of products and heavy spending on advertising and marketing.
Oligopolistic competition can give rise to a wide range of different outcomes. In some situations, the firms may employ restrictive trade practices (collusion, market sharing etc.) to raise prices and restrict production in much the same way as a monopoly. Where there is a formal agreement for such collusion, this is known as a carteL. A primary example of such a cartel is OPEC whichhas a profound influence on the...