Oligopoly: This is a form of market organization in which there are few sellers of a homogeneous or differentiated product. Unlike the other forms of market structure that we have discussed, a firm in Oligopoly makes pricing and marketing decision in light of the expected response by rivals.

Characteristics of Oligopoly: «Few Sellers: A handful of firms produce the bulk of industry output. « Homogeneous or unique product: If product is homogeneous, then we have “Pure Monopoly”. If product is differentiated, then we have “Differentiated Oligopoly”. «Blockaded Entry and Exit: Firms are heavily restricted from entering or leaving the industry. «Imperfect Dissemination of Information:

Different Measures of Market Concentration: Concentration Ratios: This is the percentage of total industry sales of the 4, 8 or 12 largest firms in the industry. Herfindahl Index: This is the sum of the squared values of the market shares of all the firms in the industry.

The Kinked Demand Curve Model: P Q Price Quantity 0

P Q 0 Price

P Q 0 Quantity Price

q1q1 Centralized Cartels: q2q2 Q PP P 000 MR MC 1 MC 2 D

D MC F 0Quantity Price, MC DLDL MR MC QLQL QFQF Price Leadership: P