What is an Oligopoly Market Structure?
An oligopoly is a market structure in which a small number of firms dominate the market. The word oligopoly is derived from the Greek word for “few”.
Oligopolies are characterised by a high degree of interdependence among firms. In other words, each firm’s decisions significantly impact the other firms in the market.
Most Important Characteristics of Oligopoly Market Structure
The market structure contains a few sellers providing standardized or differentiated product commodities, and entry to an oligopoly market is free, but it is actually highly difficult due to several hurdles such as technology, money, and so on. Because oligopolistic firms are few in number, they may band together to create a cartel in which they have an implicit agreement to control prices.
Any firm can have some influence on price, especially if it is a differentiated product. Price can be determined by a dominant firm that becomes the market leader; however, the firm can use advertising activities to compete with each other and indulge in non-price competition to attract consumers. Basically, the oligopoly market can become a monopoly through mergers and acquisitions
There are several different types of oligopolies. One common type is a duopoly, in which only two firms are in the market. A more general oligopoly has three or more firms.
Oligopolies can be found in many industries, from aerospace to automotive and pharmaceuticals. Generally, any industry with high entry barriers and capital requirements is likely to be an oligopoly.
What Are the Strategies in Oligopoly Markets?
There are a number of different ways that firms in an oligopoly can compete. One common strategy is known as price leadership.” In this strategy, one firm sets the price for the entire market. The other firms then follow suit, because they know that if they don’t, they will lose market share.
Another common strategy is known as product differentiation. In this strategy, companies try to make their products stand out from their competitors to get more customers. For example, a firm might offer a more premium product or one with more features.
Oligopolies can be dangerous for consumers because they can lead to higher prices and less innovation. However, they can also be beneficial because they can provide economies of scale that would not be possible with smaller firms.
In general, oligopolies have a small number of firms, many firms that depend on each other, and barriers to entry. They can be found in many different industries, leading to higher prices and less innovation.
