What are the characteristics of an oligopoly? Using the concept of duopoly and the price leadership model, discuss demand and pricing strategies in an oligopolistic market structure.

In a oligopoly, few firms have a control over the market. The market share of these firms can be greater than 50%. The products are differentiated and there are some barriers to entry in the market. The firms which rule the market can collude to obtain all the market surplus as profit.

In the duopoly market, there is one dominant firm which has control over the market. All the other firms are price takers. They accept the price and determine the level of their output.

If there are two firms i.e A and B in a Duopoly market structure, we can say that firm A is the dominant firm. Firm A will set a price and firm B will accept the price and sell at profit maximising quantity. For instance: if A fixes the price at p1 then B will accept the price and produce a commodity corresponding to P1 where the profit earned by B is maximized.

Both the firms in the duopoly try to maximize profit and produce a output where MR = MC.

In a oligopoly market, the dominant firm can set a price that the smaller firms follow. A price is set by the dominant firm and all the small firms follow the same price to maximize the level of their profit.