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Characteristics of Oligopoly: 1.what Is An Oligopolistic Market or Oligopoly?

An oligopolistic market, or oligopoly, is characterized by a small number of large companies that together dominate the market. These companies recognize their interdependence and how the actions of one can impact the others. As a result, they may cooperate on pricing and production decisions rather than engaging in price competition. Some key industries that exhibit oligopolistic structures include airlines, telecommunications, oil, and automobile manufacturing.

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53 views

Characteristics of Oligopoly: 1.what Is An Oligopolistic Market or Oligopoly?

An oligopolistic market, or oligopoly, is characterized by a small number of large companies that together dominate the market. These companies recognize their interdependence and how the actions of one can impact the others. As a result, they may cooperate on pricing and production decisions rather than engaging in price competition. Some key industries that exhibit oligopolistic structures include airlines, telecommunications, oil, and automobile manufacturing.

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Microeconomics - Tutorial 09

1.What is an Oligopolistic Market or Oligopoly?


The primary idea behind an oligopolistic market (an oligopoly) is that a few companies rule over
many in a particular market or industry, offering similar goods and services. Because of a
limited number of players in an oligopolistic market, competition is limited, allowing every firm
to operate successfully. The situation typically breeds regular partnerships between firms and
fosters a spirit of cooperation.

An oligopoly is a term used to explain the structure of a specific market, industry, or company.
A market is deemed oligopolistic or extremely concentrated when it is shared between a few
common companies. The firms comprise an oligopolistic market, making it possible for already-
existing smaller businesses to operate in a market dominated by a few.

For example, major airlines like American Airlines and United Airlines dominate the flight
industry; however, smaller airlines also operate within the space, offering special flights in the
holiday niche or offering unique services as Southwest does, providing special guest singers and
entertainment on certain flights.

Characteristics of Oligopoly
An oligopolistic market exhibits the following oligopoly features:

High Barriers To Entry


It raises barriers for new entrants to enter into the respective sector. It thus limits the
competition to only those already in the group. The control of oligopolists over specialized
inputs, such as resources, price, and production, makes it difficult for a new firm to survive.
Besides, high capital requirements, licensing, patents, market demand, economies of scale,
limit-pricing, and customer loyalty restrict the entry of new businesses.

2 – Price Making Power


In an oligopoly, dominant market players are influential enough to decide on the price of
products and services. And rest of the businesses or minor players follow the same. It helps
avoid the potential price war and price rigidity. All firms stick to what has been decided,
thereby ensuring price stability in the sector.
3 – Interdependence Of Firms
Because of their large size and minimal competition, each firm in an oligopoly market structure
influences the others. It includes decisions made in concentrated markets, such as product
prices, quality standards, and production planning. It also means that each firm must be aware
of the reaction of others to their actions.

4 – Differentiated Products
One of the oligopoly characteristics is the focus of its members on improving the product
quality or offering benefits to make their brand unique. Even though the products of companies
A and B are similar, there must be something that distinguishes them. And that is what turns
out to be the unique selling proposition (USP) of the respective brands in the oligopolistic
industry.

5 – Non-Price Competition
Oligopolists do not stress competing with each other on the pricing front. Instead, they try
different approaches, such as rewarding customers for their loyalty, differentiating their
product offerings, providing sales promotion schemes, acting as sponsors, etc. They do it
strategically so they do not lose their customers in what could be a price war.

Frequently Asked Questions (FAQs)


What is oligopoly?
Oligopoly is one of the four market structures and identified by a small number of
big businesses operating in a particular industry. Brand reputation, company size,
and minimal completion make decision-making crucial and influential across the
group.

Which industries are considered oligopolies?


Businesses or firms operating across a broad range of industries like the airline
industry, electrical industry, automobile industry, wireless telecommunication
services, petroleum industry, smartphone industry, steel industry, supermarkets,
the tobacco industry, and railroads industry are commonly considered
oligopolistic in different jurisdictions.

What are the characteristics of oligopoly in economics?


Oligopoly characteristics include high barriers to new entry, price-setting ability,
the interdependence of firms, maximized revenues, product differentiation, and
non-price competition.

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