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A few sellers

Oligopoly comprises of a few sellers. It is different from monopoly which has one seller, monopolistic competition which has many sellers and perfect competition which has innumerable sellers.


There exists a close interdependence among firms. A single firm cannot take independent decisions without considering the rivals’ reactions. This is because, if the oligopolist lowers the price, his rivals will also lower their prices. On the other hand, if he increases the price, the rivals will not, and therefore, he will lose customers.

Selling costs and advertisement

Under oligopoly, rival firms employ aggressive and defensive marketing weapons. The purpose of this is to gain a greater share in the market or to maximize its profits and minimize its losses. Firms incur expenditure on advertising and sales promotion measures. The rivalry is related to non-price factors only. The objective of an oligopolist is not necessarily to maximize profit. It is to capture a larger part in the share of the market.

Group behavior

Firms may realise the importance of mutual co-operation. They will have a tendency of collusion. At the same time, the desire of each firm to earn maximum profit may encourage competitive spirit. Thus, co-operative and collusive trend as well as competitive trend would prevail in an oligopolistic market.

Price rigidity

Another important feature of oligopoly is price rigidity. Price is sticky or rigid at the prevailing level due to the fear of reaction from the rival firms. If an oligopolistic firm lowers its price, the price reduction will be followed by the rival firms. As a result, the firm loses its customers. Expecting the same kind of reaction, if the oligopolistic firm raises the price, the rival firms will not follow. This would result in losing customers. In both ways, the firm would face difficulties. Hence, the price is rigid.

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