Oligopoly

Oligopoly,

Definition of Oligopoly:

  1. Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms. A monopoly is one firm, duopoly is two firms and oligopoly is two or more firms. There is no precise upper limit to the number of firms in an oligopoly, but the number must be low enough that the actions of one firm significantly influence the others.

  2. Market situation between, and much more common than, perfect competition (having many suppliers) and monopoly (having only one supplier). In oligopolistic markets, independent suppliers (few in numbers and not necessarily acting in collusion) can effectively control the supply, and thus the price, thereby creating a sellers market. They offer largely similar products, differentiated mainly by heavy advertising and promotional expenditure, and can anticipate the effect of one anothers marketing strategies. Examples include airline, automotive, banking, and petroleum markets. Mirror image of oligopsony.

  3. A state of limited competition, in which a market is shared by a small number of producers or sellers.

  4. Oligopolies in history include steel manufacturers, oil companies, rail roads, tire manufacturing, grocery store chains, and wireless carriers. The economic and legal concern is that an oligopoly can block new entrants, slow innovation, and increase prices, all of which harm consumers. Firms in an oligopoly set prices, whether collectively – in a cartel – or under the leadership of one firm, rather than taking prices from the market. Profit margins are thus higher than they would be in a more competitive market. What's the Difference Between Monopoly and an Oligopoly? Learn more.

How to use Oligopoly in a sentence?

  1. With limited competition, or oligopolies, the various players within a particular industry will most likely have different cost structures.
  2. Government policy can discourage or encourage oligopolistic behavior, and firms in mixed economies often seek government blessing for ways to limit competition.
  3. The major difficulty that oligopolies face is the prisoner's dilemma that each member faces, which encourages each member to cheat.
  4. The utility companies continued to wield their oligopoly power, raising prices without any noticeable improvement in service, knowing their customers had limited options.
  5. It is a fortuitous, influential, and powerful state indeed, the circumstance of being one of few select sellers within an oligopoly .
  6. Economic, legal, and technological factors can contribute to the formation and maintenance, or dissolution, of oligopolies.
  7. Oligopoly is when a small number of firms collude, either explicitly or tacitly, to restrict output and/or fix prices, in order to achieve above normal market returns.
  8. The beverage companies Coca-Cola and Pepsi are largely involved in an oligopoly because they sell very similar soda products which forces smaller beverage companies out of business.

Meaning of Oligopoly & Oligopoly Definition