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OLIGOPOLY
•CLASSIFICATION OF OLIGOPOLY
01 MARKETS
.
•COLLUSION VERSUS INDEPENDENT
ACTION
•THE KINKED DEMAND CURVE
02 •SALES
. AND PROFITS OF
OLIGOPOLIES

•THE U.S EXPERIENCE

03 •BARRIERS
. TO ENTRY

•THE WELFARE EFFECTS OF

04 OLIGOPOLY
.
WHAT IS OLIGOPOLY?
Oligopoly is a market structure characterized by
a small number of firms and a great deal of
interdependence among them.
 Classification of Oligopoly
Markets
1.Pure Oligopoly - the
product produced by the
various firms are
identical.

2. Differentiated Oligopoly -
the product produced are
not homogeneous.
Collusion - a secret agreement between two
or more persons or institutions to achieve
certain objectives among the industry's firms
Collusion involves direct negotiation and agreements
among competitors. There are atleast three major
incentives leading oligopolistics firms toward collusion:

1. They can increase their profits if they can decrease the

amount of competition among themselves and act
monopolistically.

2. Collusion can decrease oligopolistic uncertainty.

3. Collusion among the firms already in an industry will

facilitate blocking newcomers from that industry.
 Categories of Collusion

1.Perfect Collusion

• Cartel - a formal organization of the producers within a

given industry.
Cartels in order to be successful and effective, must possess the
following characteristics:

1.All Producers or sellers in the industry are included in the

agreement.
2. The agreement is definite and enforceable to all parties involved.
3. It covers both the price to be charged and the quantity of output to
be produced by each agreeing seller and the output allocation
being calculated as to minimized the aggregate cost of producing
the total output of the industry.
4. It also include a formula for distributing the profits of the combined
operations among the agreeing parties.
5. All Parties adhere rigorously to the terms of agreement.
Categories of Collusion

2. Imperfect Collusion - is made up mostly of tacit informal

arrangements under which the firms of an industry seek to
establish prices and outputs.
Collusion of this type results from the failure to meet
one or more of the characteristics of perfect collusion
as mentioned previously. This variation can come
about basically in the following ways:
1.Incompletely observed collusion.

2. Collusion with indefinite terms of Agreement among

sellers affecting prices or outputs.
3. Collusion with incomplete participation of the sellers
in the industry.
4. Interdependent action without agreement.
The Centralized Cartel

-is an example of collusion

in its most complete form. Its
purpose is the monopolistic
maximization of industry
profits by a few firms in the
industry.
 THE KINKED
DEMAND CURVE

A traditional feature of
oligopoly stressed by many
countries since the 1930s is
the prevalence of rigid or
sticky prices in industries
characterized by oligopoly.
 Oligopolistic prices
are normally "sticky"
downward.
Paul Sweezy in 1939 asserted
that if an oligopolist cuts his
price he can be pretty sure
that his rivals will meet the
reduction.
Assuming that the firms are maintaining a high level of profits
and their market share, it may be the case that:

2. Competitors are more

1. Competitors will not
follow a price increase
by one firm-therefore
demand will be relatively
elastic and a rise in price
would lead to a fall in a
total revenue of the firm.
likely to match a price
decrease by one firm to
avoid a loss of market
share-therefore demand
will be more inelastic
and a fall in price will
also lead to a fall in total
revenue.
SALES AND PROFITS OF OLIGIPOLIES

There are several firms in oligopoly.

Profits can still be maximized but
then there are several firms that
share the market. Thus, profits are
likewise shared by several firms.
U.S EXPERIENCE

Are oligopolistic
firms in the United
States are
possible?
If you are in FORTUNE 500 Top 25
largest industrial corporation , the
answer is in positive
Current view: 1-100

TOP 25 COMPANIES IN U.S OF 2012

Revenues Profits
Rank ▾ Company ($ millions) ($ millions)
1 Exxon Mobil 452,926.0 41,060.0
2 Wal-Mart Stores 446,950.0 15,699.0
3 Chevron 245,621.0 26,895.0
4 ConocoPhillips 237,272.0 12,436.0
5 General Motors 150,276.0 9,190.0
6 General Electric 147,616.0 14,151.0
7 Berkshire Hathaway 143,688.0 10,254.0
8 Fannie Mae 137,451.0 -16,855.0
9 Ford Motor 136,264.0 20,213.0
10 Hewlett-Packard 127,245.0 7,074.0
11 AT&T 126,723.0 3,944.0
12 Valero Energy 125,095.0 2,090.0
13 Bank of America Corp. 115,074.0 1,446.0
14 McKesson 112,084.0 1,202.0
15 Verizon Communications 110,875.0 2,404.0
16 J.P. Morgan Chase & Co. 110,838.0 18,976.0
17 Apple 108,249.0 25,922.0
18 CVS Caremark 107,750.0 3,461.0
19 International Business Machines 106,916.0 15,855.0
20 Citigroup 102,939.0 11,067.0
 TOP 20 COMPANIES IN U.S OF 2018
Revenue
Rank Name Industry Revenue growth Employees Headquarters Ref
(USD millions)
1 Walmart Retail 514,405 2.8% 2,200,000 Bentonville, AR [1]

2 ExxonMobil Oil and gas 290,212 18.8% 71,000 Irving, TX [2]

3 Apple Electronics 265,595 15.9% 132,000 Cupertino, CA [3]

4 Berkshire Hathaway Conglomerate 247,837 2.4% 389,000 Omaha, NE [4]

5 Amazon Retail 232,887 30.9% 647,500 Seattle, WA [5]

6 UnitedHealth Group Healthcare 226,247 12.5% 300,000 Minnetonka, MN [6]

7 McKesson Healthcare 208,357 4.9% 78,000 Irving, TX [7]

8 CVS Health Healthcare 194,579 5.3% 295,000 Woonsocket, RI [8]

Telecommunication [9]
9 AT&T 170,756 6.4% 268,220 Dallas, TX
s
10 AmerisourceBergen Pharmaceuticals 167,940 9.7% 20,500 Chesterbrook, PA [10]

11 Chevron Oil and gas 166,339 23.6% 48,600 San Ramon, CA [11]

12 Ford Automotive 160,338 2.3% 199,000 Detroit, MI [12]

13 General Motors Automotive 147,049 6.5% 173,000 Detroit, MI [13]

14 Costco Retail 141,576 9.7% 194,000 Issaquah, WA [14]

15 Alphabet Technology 136,819 23.4% 98,771 Mountain View, CA [15]

16 Cardinal Health Healthcare 136,809 5.3% 50,200 Dublin, OH [16]

Walgreens Boots [17]

17 Pharmaceuticals 131,537 11.3% 299,000 Deerfield, IL
Alliance
18 JPMorgan Chase Financials 131,412 15.4% 256,105 New York City, NY [18]

Telecommunication [19]
19 Verizon 130,863 3.8% 144,500 New York City, NY
s
20 Kroger Retail 121,162 1.2% 453,000 Cincinnati, OH [20]
 An American multinational retail corporation that operates a
chain of hypermarkets, discount department stores, and
grocery stores.

As of October 31, 2019, Walmart has 11,438 stores and

clubs in 27 countries, operating under 55
different names. The company operates under the name
Walmart in the United States and Canada, as Walmart de
México y Centroamérica in Mexico and Central America,
as Asda in the United Kingdom, as the Seiyu Group in
Japan, and as Best Price in India. It has wholly owned
operations in Argentina, Chile, Canada, and South Africa.
Since August 2018, Walmart only holds a minority stake in
Walmart Brasil, which was renamed Grupo Big in August
2019, with 20 percent of the company's shares, and private
equity firm Advent International holding 80 percent
ownership of the company.
Walmart has been the Walmart is the world's largest company by revenue,
with US$514.405 billion, according to the Fortune Global
world's largest company by 500 list in 2019. It is also the largest private employer in the
revenue since 2014 world with 2.2 million employees..
 BARRIERS TO ENTRY

NATURAL BARRIERS

•ECONOMIES OF LARGE
SCALE PRODUCTION

•HIGH FIXED COST

•HIGH R&D COST

 ARTIFICIAL BARRIERS

•GOVERNEMENT
REGULATIONS
AND PATENTS

•STRATEGIC SOURCES OF
RAW MATERIALS

•PRODUCT
DIFFERENTIATION
 Thank You
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