Expectations and Stability in Oligopoly Models

Question: Discuss about the Expectations and Stability in Oligopoly Models. Answer: Introduction An oligopoly can best be defined as a market structure where there are very few big firms that cover a huge share in the market. There are many customers but few sellers. In this paper, I aim to explain the characteristics of oligopoly market. There exists a mutual interdependence of the industries when it comes to the situation of making a certain decision concerning the product. Because the seller deals with similar but slightly modified products, when one firm makes a certain decision, it is likely to have an effect on the other firms hence the need to consider the actions of a competing firm. Because a firm considers the other as its competitor or rival, there is the need to put into consideration the reaction of the other industries when taking an action. Therefore there is the need to keep an eye on the other firms. An oligopoly market is characterized by having few firms that are large, there are large numbers of customers who are after the product but the sellers are just a few. For example, in the field of producing automobiles, a country can have only a few producers of these goods and services, An oligopoly market deals with goods and services that are the same or homogeneous but have been they have been differentiated. This means that the products can have different branding or packaging in order to attract more buyers in the market. A good example of a differentiated product is the different types of toothpaste. There is freedom to leave the market. A firm can leave the market at will. However, there are restrictions when it comes to entering the market which may include licensing, economies of scale and high capital requirement. The can practice monopoly since the few firms control the prices of products and output. The firms seem to be competing in the market where an individual firm takes the other as a rival. However the firms they have to work together in cooperation due to the interdependence among them. This means that a firm cannot operate on its own since it has to consult others when setting the prices of the rebranded products. References Fudenberg, D., Tirole, J. (2013). Dynamic models of oligopoly. Taylor Francis. Okuguchi, K. (2013). Expectations and stability in oligopoly models (Vol. 138). Springer Science Business Media.