Oligopoly

Oligopoly

Oligopoly is a market structure dominated by a small number

Of large firms, selling either identical or differentiated products, and there are significant barriers to entry into the industry. This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition.

Oligopoly being a general market structure category, dominates the modern economic landscape. About half of the output produced in the world s economy can be traced to oligopolistic industries. Oligopolistic industries are as diverse as they are widespread. Oligopoly ranges from breakfast cereal to cars, from computers to aircrafts, from television broadcasting to pharmaceuticals, from petroleum to detergent. Because each firm in an oligopolistic industry is relatively large, each has a substantial degree of market control. It's not total control like in a situation of monopoly, but it's significantly greater than that of a monopolistically competitive firm. While monopolistic competition and oligopoly have distinct identifiable characteristics, they really form a continuum on the spectrum of market structures. Any boundary separating oligopoly from monopolistic competition is fuzzy at beast.

An industry that's monopolistically competitive in a large city, for example, might be oligopolistic in a smaller town.

A key feature of oligopoly is interdependence among firms in an industry. The actions of one firm depend on the actions of another. In both perfect competition and monopolistic competition the actions of one firm have no affect on other firms. Each firm is so small relative to the overall market, that firms are independent. And of course monopoly is the only firm in an industry, so interdependence is not a relevant issue. Oligopolistic interdependence creates a number of interesting economic issues. One is the tendency for competing oligopolistic firms to turn into cooperating oligopolistic firms. When they do, inefficiency...