oligopoly
oligopoly is a situation where a few firms sell most or all of the goods in a market.
Definition
oligopoly is a situation where a few firms sell most or all of the goods in a market. It is probably the second most common market structure. In such a market, the firms likely dominate the sale of goods.
Mechanism
Each individual oligopoly faces a private temptation to produce just a slightly higher quantity and earn slightly higher profit-while still counting on the other oligopolists to hold down their production and keep prices high. Quantity demanded in the market may also be two or three times the quantity needed to produce at the minimum of the average cost curve-which means that the market would have room for only two or three oligopoly firms. This dynamic creates a situation where even though oligopolists recognize they would benefit as a group by acting like a monopoly, they are incentivized to act in their own self-interest.
Causes
The complexity of oligopoly arises from mutual interdependence among firms, leading to no single accepted theory of its behavior. This interdependence creates a situation where firms' decisions affect each other, complicating predictions. As a result, the lack of a unified theory reflects the challenges in analyzing such market structures.
Effects
The complexity of oligopoly arises from mutual interdependence among firms, leading to no single, generally-accepted theory of its behavior. This lack of consensus stems from the result of interdependent decision-making processes. Unlike other market structures, oligopolies do not follow predictable patterns due to the interplay of strategic actions among firms.
Examples
Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. These sectors are characterized by a small number of large firms dominating market share. The concentration of power in these industries often limits competition and influences pricing strategies.
Market Structure
oligopoly is probably the second most common market structure. It refers to a market structure where a small number of firms dominate. This structure is characterized by mutual interdependence among firms. The dominance of a few firms influences pricing and output decisions. These firms often engage in strategic behavior to maintain their market position.
Examples of Auto Industry
Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. The auto industry is a classic example of an oligopoly due to its concentration of market power among a few major manufacturers. This sector demonstrates how limited competition can shape industry dynamics and pricing strategies.