"An oligopoly is a market in which control over an industry lies in the hands of a few large sellers who own a dominant share of the market."
A small number of large firms dominate an industry, often resulting in price collusion and limited competition.
Market structure: This refers to the way in which different firms compete with each other in a particular industry. Oligopoly is a type of market structure where there are only a small number of firms in the market, each of which has a significant market share.
Game theory: This is a mathematical framework used to model decision making in strategic situations, such as in oligopoly. Game theory helps to analyze how each firm in an oligopoly will respond to the actions of other firms.
Interdependence: In an oligopoly, each firm's success is heavily dependent on the actions of its competitors. This interdependence makes it difficult for firms to make decisions without considering the likely responses of their rivals.
Strategic behavior: Firms in oligopoly engage in strategic behavior, which means they undertake actions designed to improve their market position relative to their rivals. This strategic behavior may involve price competition, product differentiation, or other tactics.
Collusion: In some cases, firms in oligopoly may collude with each other to avoid competing and instead act as a monopoly. Collusion is illegal, but it is difficult to detect and prove.
Non-price competition: Oligopoly firms often engage in non-price competition, such as product innovation, advertising, and branding. These activities are used to differentiate their products from those of their competitors, rather than competing on price alone.
Barriers to entry: Oligopoly firms may face barriers to entry, which prevent new firms from entering the market and competing with them. These barriers may include economies of scale, patents, regulatory restrictions, or high start-up costs.
Monopolistic competition: Oligopoly is sometimes compared to monopolistic competition, which is another market structure where there are many firms but each has a small market share. However, there are key differences between the two, including the degree of product differentiation, the level of barriers to entry, and the pricing behavior of firms.
Price wars: In some cases, firms in oligopoly may engage in price wars, where they lower prices to undercut their rivals. This can lead to a race to the bottom, with all the firms in the industry suffering reduced profits as a result.
Nash equilibrium: Nash equilibrium is a concept on game theory that describes the situation in which each player in a game chooses the best strategy for themselves, given the strategies of the other players. In an oligopoly, Nash equilibrium may be used to model the behavior of each firm and predict their likely outcomes.
Collusive oligopoly: This is a type of oligopoly where firms collude or form a cartel to set prices and output levels in the market. The firms act as a single entity and make decisions jointly, which may lead to a decrease in competition and consumer surplus.
Non-collusive oligopoly: This is a type of oligopoly where firms do not collude or form a cartel but compete with each other based on strategic decisions. Non-collusive oligopolies may result in price wars and other forms of aggressive competition as the firms try to gain market share.
Monopoly oligopoly: This is a type of oligopoly where one firm dominates the market and has a significant control over the price and output levels. The other firms in the oligopoly act as followers and do not engage in strategic competition.
Differentiated oligopoly: This is a type of oligopoly where the firms in the market produce similar products, but they have differentiated features that make them unique. The firms compete based on product differentiation, advertising, and branding.
Homogeneous oligopoly: This is a type of oligopoly where firms in the market produce identical products, and the competition is based entirely on price. In homogeneous oligopolies, firms engage in price wars, undercutting their competitors to gain market share.
Natural oligopoly: This is a type of oligopoly where a few firms dominate the market because of economies of scale. Natural oligopolies arise in industries where the fixed costs of production are high, and the marginal costs of production are low.
Strategic behavior oligopoly: This is a type of oligopoly where firms in the market engage in strategic behavior, such as pricing decisions, marketing, and advertising. In this type of oligopoly, the firms may use game theory to assess their competitors' behavior and adjust their strategy accordingly.
Contestable oligopoly: This is a type of oligopoly where firms operate in a market with low entry barriers, allowing potential competitors to enter the market quickly. Contestable oligopolies result in greater competition and may lead to lower prices and increased consumer surplus.
"Oligopolistic markets have homogenous products, few market participants, and inelastic demand for the products in those industries."
"Firms in oligopolistic markets can influence prices through manipulating the supply function."
"Firms in an oligopoly are also mutually interdependent, as any action by one firm is expected to affect other firms in the market and evoke a reaction or consequential action."
"Firms in oligopolistic markets often resort to collusion as means of maximizing profits."
"In the presence of fierce competition among market participants, oligopolies may develop without collusion."
"Many jurisdictions deem collusion to be illegal as it violates competition laws and is regarded as anti-competition behavior."
"The United States Department of Justice Antitrust Division and the Federal Trade Commission are tasked with stopping collusion."
"The Federal Competition and Consumer Act 2010 details the prohibition and regulation of anti-competitive agreements and practices."
"Corporations may often thus evade legal consequences through tacit collusion, as collusion can only be proven through direct communication between companies."
"Within post-socialist economies, oligopolies may be particularly pronounced."
"In Armenia, where business elites enjoy oligopoly, 19% of the whole economy is monopolized, making it the most monopolized country in the region."
"Civil aviation, electricity providers, the telecommunications sector, rail freight markets, food processing, funeral services, sugar refining, beer making, pulp and paper making, and automobile manufacturing."
"The EU competition law in Europe prohibits anti-competitive practices such as price-fixing and competitors manipulating market supply and trade."
"As a result of their significant market power, firms in oligopolistic markets can influence prices through manipulating the supply function."
"In this situation, each company in the oligopoly has a large share in the industry and plays a pivotal, unique role."
"Oligopolistic markets have homogenous products, few market participants, and inelastic demand for the products in those industries, while monopolies have complete control over the market."
"Many industries have been cited as oligopolistic, including civil aviation, electricity providers, the telecommunications sector, rail freight markets, food processing, funeral services, sugar refining, beer making, pulp and paper making, and automobile manufacturing."
"Due to their market power, oligopolies may have limited incentives to provide competitive prices and innovative products, potentially impacting consumer welfare."
"Competition laws and regulations, such as those enforced by governmental agencies, aim to prevent collusion, price-fixing, and other anti-competitive practices in order to maintain fair and competitive markets."