The oligopoly situation can be classified into various types on the following basis.
1. Product Differentiation:
On the basis of product differentiation or nature of the product produced and marketed, oligopoly may be classified into pure (or perfect) oligopoly and differentiated (or imperfect) oligopoly. This classification of oligopoly enables the rival firms to study and identify the strategic variables available to compete in the market.
Oligopoly without product differentiation is termed as pure oligopoly. Here, all the rival firms produce homogeneous or identical products. Business is transferable among rival firms. Since the products of different firms are indistinguishable, the firms will have to rely on price or lower costs to compete in the market.
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Price-output variations will distinctly affect the sales and prices of other firms, which will tend to respond accordingly. Thus, there is a recognised rivalry among the firms under pure oligopoly. Though, it is rare to find pure oligopoly situation, yet, cement, steel, aluminium, chemicals, cooking gas and basic metal producing industries approach pure oligopoly.
Most of the industries under oligopoly including automobiles, refrigerators, computers, microwave, audio and visual products, air-conditioners, cigarettes, pharmaceuticals, etc., fall in the category of differentiated oligopoly. Under differentiated or impure oligopoly, the firms produce differentiated products, which are close, but not perfect substitutes to each other.
Here, there is not only recognised rivalry, but, each firm also enjoys the individual degree of monopoly allowed by product differentiation. The firms under differentiated oligopoly have greater opportunity to compete on the basis of ‘non price variables’ like product variations and promotional strategies.
2. Entry of Firms:
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On the basis of ease of entry of competitors in the market, oligopoly may be classified as open or closed. Under, open oligopoly; new firms are free to enter the market. On the other hand, closed oligopoly is dominated by a few large firms with blockaded entry of new firms.
3. Leadership:
On the basis of presence of price leadership, the oligopoly situation may be classified as partial or full. Partial oligopoly refers to the market situation, where one large firm (called price leader) dominates the market and the other firms (called followers) look to the price leader with regard to the policy of price fixation. Full oligopoly, on the contrary, exists, where no firm is dominant enough to take the role of a price leader, i.e., price leadership is a conspicuous by its absence.
4. Agreement:
Oligopoly may be classified into collusive and non-collusive oligopoly on the basis of agreement or understanding among the firms. Collusive oligopoly refers to a market situation, where the firms, instead of competing with each other, combine together and follow a common price policy. The collusion may be open or tacit (secret). On the other hand, non-collusive oligopoly implies absence of any agreement or understanding.
5. Coordination:
An oligopoly situation may be classified into organised and syndicated oligopoly on the basis of the degree of coordination found among the firms. Under organised oligopoly, the firms organise themselves into a central association for fixing price, output, quota, etc. On the contrary, syndicated or unorganised oligopoly refers to a situation, where the firms sell their products through the centralised syndicate.