OLIGOPOLY
INTRODUCTION
In this topic the oligopoly form of market is studied. You will
learn that fewness of firms in a market results in mutual
interdependence. The fear of price wars is verified with the
help of the kinked demand curve. Collusive forms and
non-collusive forms of market are analyzed. The economic effect
of the oligopoly form of market is presented.
OLIGOPOLY CHARACTERISTICS
The oligopoly form of market is characterized by
- a few large dominant firms, with many small ones,
- a product either standardized or differentiated,
- power of dominant firms over price, but fear of retaliation,
- technological or economic barriers to become a dominant firm,
- extensive use of nonprice competition because of the fear of
price wars.
All "big" business is in the oligopoly form of market. Being a
major corporation almost automatically implies that the company
has means of controlling its market.
OLIGOPOLY CONCENTRATION
An oligopoly form of market is characterized by the presence of
a few dominant firms. There may be a large number of small
firms, but only the major firm have the power to retaliate. This
results in a high concentration of the industry in only 2 to 10
firms with large market shares.
The gasoline industry is an oligopoly in the United States: it is
dominated by a few giant firms such as Exxon, Mobil, Chevron and
Texaco. Note, however, that many small firms exist in the
market: small independent gas stations which sell in just one
city or just a limited region.
OLIGOPOLY CONCENTRATION CAUSES
The most notable causes for the high concentration in oligopoly
type of markets are
- economies of scale present in productio ...