1. Few sellers in the market
2. Demand curve of oligopolistic producers is a kinked demand curve as shown in the diagram below
In the above diagram, it can be seen that the demand curve is kinked at point A and AB of the demand curve shows elastic demand situation, while AC shows an inelastic demand situation.
This is because under normal circumstances if an oligopolistic producer increased the price above P
1 the consumer will respond by cutting down the consumption of their commodity by large amount and therefore AB of the demand curve has to show a fairly elastic demand situation.
On the other hand, if the oligopolistic producer decides to reduce his price below P
1 other sellers would also reduce their price such that he would not be able to increase his sale by a greater proportion hence the portion AC of demand curve has to show an inelastic demand situation.
3. There is price rigidity in oligopolistic market. This is mainly because an oligopolistic producer cannot predict the reaction of other producers in the market in case he raised or lowered the prices.
4. Because sellers are few sometimes they can come together and form one organization the aim being to be able to control price fall by controlling the supply of their commodities in the market. When sellers come in one organization with the aim of controlling supply we say that they have formed a cartel organization.
5. Oligopolistic producers normally try to influence the demand they face through vigorous advertisement campaign.
gideon1 answered the question on
September 23, 2017 at 18:04