Oligopoly Market Structure

Definition and measuring oligopoly

An oligopoly is a market structure in which a few firms dominate. When a market
is shared between a few firms, it is said to be highly concentrated. Although only
a few firms dominate, it is possible that many small firms may also operate in the
market.
Oligopoly Is Widespread.
Businesses that are part of an oligopoly share some common charateristics:
-

They are less concentrated than in a monopoly, but more concentrated

than in a competitive system.

There is still competition within an oligopoly, as in the case of airlines. Airlines

match competitors air fares when sharing the same routes. Also, automobile
companies compete in the fall as the new models come out. One will reduce
financing rates an dthe others will follow suit.
-

The businesses offer an identical product or services.

This creates a high amount of interdependence which encourages competition in

non price-related areas, like advertising and packaging. The tobacco companies,
soft drink companies, and airlines are example of an imperfect oligopoly.
Industries which are examples of oligopolies include:
-

Steel industry
Aluminum
Film
Television
Cell phone
Gas

There are:
-

Four music companies control 80% of the market Universal Music Group,
Sony Music Entertaiment, Warner Music Group and EMI Group
Six major book publishers Random House, Pearson, Hachette,
HarperCollins, Simon & Schuster and Holtzbrinck
Four breakfast cereal manufacturers Kellogg, General Mills, Post and
Quaker
Two major producers in the beer industry Anheuser-Busch and
MillerCoors
Two major providers in the healthcare insurance market Anthem and
Kaiser Permanente

Pros and Cons

-

Pro: Prices in an oligopoly are usually lower than in a monopoly, but higher
than it would be in a competitive market.
Pro: Prices tend to remain stable because if one company lowers the price
too much, then the other will do the same. The result lowers the profit
margin for all the companies, but is great for the customer.

Con: Output would be less than in a competitive market and more than in
a monopoly. Most competition between companies in an oligopoly is by
means of research and development (or innovation), location, packaging,
marketing, and the production of a product that is slightly different than
the other company makes.
Con: Major barriers keep companies from joining oligopolies. The major
barriers are economies of scale, access to technology, patents, and
actions of the business in the oligopoly. Barriers ca also be imposed by the
government, such as limiting the number of licenses that are issued.
Con: Oligopolies develop in industries that require a large sum of money to
start. Existing companies in oligopolies discourage new companies
because of exclusive access to resources or patented processes, cost
advantages as the result of mass production, and the cost of convincing
consumers to try a new product.

Lastly, companies in oligopolies establish exclusive dealership, have agreements

to get lower prices from suppliers, and lower prices with the intention of keeping
new companies out.