Monopolistic and Oligopoly Market Structures

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1. Introduction – Market structures and cases under study

Definition - The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market.

Market structures under study are ones which are more pronounced than others in the real world i.e. ‘Monopolistic competition’ and ‘Oligopoly’.

Very few markets in real world can be classified as perfectly competitive or as a pure monopoly. The vast majority of firms do compete with other firms, often quite aggressively, and yet they are not price takers: they do have some degree of market
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Key characteristics of Oligopoly are:
 An oligopoly maximizes profits by producing where marginal revenue equals marginal costs.
 Ability to set price: Oligopolies are price setters rather than price takers.
 Barriers to entry are high.
 Number of firms: "Few" – a "handful" of sellers.
 Long run profits: Oligopolies can retain long run abnormal profits.
 Product differentiation: Product may be homogeneous (steel) or differentiated (automobiles).
 Perfect knowledge: Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete.
 Interdependence: Each firm keeps a close eye on the activities of other firms in the industry. Decisions made by one firm invariably affect others. There is a tension between cooperation and self-interest among players.

4. Objectives of the study

 Application of the theoretical understanding vis-à-vis real world markets and draw logical conclusions.
 Game theoretic analysis of Oligopoly.

5. Assumptions and limitations

Indian curry in UK
 Study takes into account restaurants which are specialized and only serve Indian curry usually competing in local markets.
 Study does not take into account premium hotels.

AT&T in US

6. Indian curry industry in UK – Introduction

The eating-out sector i.e. takeaways and restaurants is a vibrant market in the UK, with sales of some £28 billion. Although the
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