Question

An oligopoly can be similar to a competitive market. Explain two ways they are similar and two ways they are different?

A firm that is in an oligopoly market will try to attain the benefits (for them) of acting like a monopoly by colluding with the other firms in the market and forming a cartel. However, these can break down to the point where the market is more similar to a competitive market. Explain why these agreements often break apart (be sure to include explanation of the Nash equilibrium and Dominate Strategy).

Why does an oligopoly market not just become a competitive market?

Answer 1

Similarities between oligopoly and perfect competition

• There are large number of buyers in both the market forms. There are some degree of competition in both the market form.

Difference between oligopoly and perfect competition

1. ) The demand curve under the two market forms differ.In perfect competition, firm face a horizontal demand curve i.e perfect elastic.However , the demand curve in case of oligopoly can not be ascertained as the behaviour of producer is uncertain.
2. They are differ on the basis of degree of price control. In perfect competition , firm is a price taker its action has no influence over the market price and it has to take price as given. While A firm under oligopoly follows the policy of price, but it prefers to stick to its prices so as to avoid a price war.