Oligopolies

Oligopolies exist because there are few companies in a market structure wherein they control the commodity, prices and competition. Oligopoly is the result of the relationship between the condition of production and potential scales volume. It is possible for smaller oligopolies to exist but the main oligopolistic has immense control over the market so therefore other smaller oligopolistic firms could eventually be driven out the market.

The entry condition of oligopoly is difficult. With new smaller oligopoly firms’ beginning years, they have very low profit because of the economies of large scale. This is why there is so few oligopolies because they make it difficult for new firms to enter the market. Factors affecting entry in the a oligopoly market are costs of resources and raw materials, high start-up fees and government restrictions.

Mutual interdependence is when a firm shapes its policies and behaviours to the polices of competing firms. There are few oligopolies and they are continuously watching their competitors’ price, production and promotional strategies. Oligopolistic firms are in a position wherein they can influence the prices and productions of other firms. However, they must take into consideration the reaction of their competitors’ and the response they will have in regards to their prices and productions. Oligopolistic firms have to be prepared with defensive strategies and aggressive strategies cannot be predictable otherwise their decisions with not be successful.

Oligopolistic firms have to take into consideration the reaction of their competitors although it is not easy to predict what the demand curve will like in mutual interdependence circumstances. Firms want their competitors to have as little knowledge as possible about the marginal revenue curve. In order foe firms to know how their competitors will respond to their policies and prices, they must know their demand curve.