What is an oligopoly made of?

Pricing

(free pricing)


Pricing. Example of free pricing in a market
the process of establishing a price through the interaction of supply and demand. The pricing depends on the respective type of market. Therefore, a fundamental distinction is made between price formation on perfect markets and price formation on imperfect markets. A distinction is made e.g. B. between pricing in full competition (free pricing), the price formation in the case of incomplete competition or monopoly competition (see there), the price formation in the monopoly (see there) and the price formation in the oligopoly.

Under the ideal conditions of complete competition, price formation is the result of the meeting of supply and demand, in which the equilibrium price and the equilibrium quantity are formed. The relationships between market price, supply and demand quantities can be seen in the following example.

At a market price of 10 €, the sellers are offering 350 units of the good, but only 150 units of the good are in demand, so that there is an excess supply of 200 units. This situation leads to price reductions by the providers. At the market price of € 9, the vendors are ready to sell another 300 units. At this price, however, buyers only want to buy 200 units. So there is still an excess supply of 100 units. If the providers lower the price further to € 8, 250 units of the goods will still be offered for sale. At this price, consumers are willing to buy a larger quantity of the good (250 units). The supply and demand are the same at a price of € 8, the market equilibrium (see there) has been reached. In equilibrium, the largest quantity of goods (250 units) is sold and the market has been cleared, since there is neither too much supply nor too much demand. With the equilibrium price of € 8, all providers who are willing to sell their goods at this price or a lower price and all buyers who are willing to pay at least this price have a chance.

Only at the intersection of the supply curve and the demand curve is there a market equilibrium between supply and demand. If the price is higher than the equilibrium price, there is an excess supply and if the price is lower, the demand exceeds the quantity offered. The ongoing adjustment actions of the market participants, e.g. B. Reductions in price by suppliers or purchases on the part of consumers, directing supply and demand towards market equilibrium; they are also referred to as the market mechanism (see there).

Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life. 6th edition. Mannheim: Bibliographisches Institut 2016. Licensed edition Bonn: Federal Agency for Civic Education 2016.