Explain five features of oligopoly. (10 marks)

Explain five features of oligopoly.

Features of oligopoly include:

1. Firms are interdependent in decision making. Firms keenly observe each others’ actions/decision hence acting in any way triggers counter reactions (from other firm s).
2. Firms deal in products that are homogenous or similar. The products are close substitutes of each other and are only differentiated in terms of aspects like colour/packaging/shapes/pricing/branding.
3. Firms may engage in non-price competition/collusive oligopoly. The firms under oligopoly may avoid price wars hence only compete via other means like aggressive advertising/after sales services/market segmentation/fixing quotas.
4. Unpredictability of behaviour/uncertainty since firms under oligopoly keep reacting to market changes differently/actions taken by other firms within the market may take others by surprise.
5. The market is made up of a few large firms since such firms operating under oligopoly tend to have a large capital outlay/make extensive use of modem technology in their production activities/control substantial share of the market.
6. There are limiting factors such as large capital investment required to be a player in this market/the level of technology involved may keep off possible entrants into the market/intimidation/collusion.
7. Firms may engage in price wars/rivalry/cut throat competition which may lead to survival/collapse of some firms.
8. May lead to price rigidity/kinked demand occasioned by fear of other firms’reactions.
9. There may be price leadership where the dominant firm dictates the market price/rules the market.

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