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
One of the key features of an oligopoly is that there are barriers to entry into the market. These barriers may be economic, such as high capital requirements, or legal, such as patents or other government-granted protections. The result is that oligopolies tend to be quite stable over time.
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 a product 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.