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Give the meaning of collusive oligopoly. Explain any two features of oligopoly. |
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Answer» Collusive oligopoly is a form of the market in which there are few firms in the market and all decide to avoid competition through a formal agreement. They collude to form a cartel, and fix for themselves output quota and market price. Sometimes a leading firm in the market is accepted by the cartel as a price leader. Members of the cartel accept the price as fixed by the price leader. Two main features of oligopoly are as under: (i) Few Firms: A few firms, but large in size, dominate the market for a commodity. Each firm commands a significant share of the market and can impact market price of the product through its independent price-output policy. (ii) Barriers to the Entry of Firms: There are various barriers to the entry of new firms. These barriers are almost similar to those under monopoly. Patent-rights is the most important form of entry-barrier. Entry of the new firms is extremely difficult, if not impossible. |
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