Microeconomics

Running Head: MICROECONOMICS
Microeconomics
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MICROECONOMICS
Oligopoly market is a form of imperfectly competitive market, where only a few
sellers engage in selling either homogenous or differentiated product. The structure of
oligopoly market lies between pure monopoly and that of monopolistic competition. When
sellers in the oligopoly market are sell homogenous product then it is called pure oligopoly
(Baumol & Blinder, 2015). A differentiated oligopoly is one where firms sell differentiated
product. The other forms of oligopoly market include collaborating oligopoly and competing
oligopoly.
In the oligopoly market, before choosing decision regarding own price and output
firms have the opportunity to establish pairwise collaborative links with opposition firm. The
collaboration is formed with the objective of reducing production cost. The various
collaborative links together form a collaboration network. The firms collaborate with other
firms in order to share information regarding market condition, new technology as well as to
bear the joint cost of production (Kolmar, 2017). Collaboration between firms generally
strengthen the competitive position of collaborating firms. The interim collaboration thus
have an important effect on function of firms in the market. In a collaborative oligopoly,
when some firms have lot of links while others have a relatively few links then this forms
asymmetric collaboration. Another feature of collaboration is intransitive relation. There
might be a link between firm A and B, and B and C but no link between A and C.
In contrast to a collaborating oligopoly, in a competing oligopoly each firms compete
with their rival firms. The most common form of competition is the price competition among
the rival firms. One striking feature of competing oligopoly is that the market demand is not
described by the conventional demand curve (McKenzie & Lee, 2016). The price rigidity in
this form of market is captured by the kinked demand curve. The demand curve is kink
shaped because of the asymmetric behavior pattern of different sellers. When one firm
increases price then other will not follow the same as higher price leads to a reduction in