What is an Oligopoly?
An oligopoly is a market structure in which a small number of firms have the large majority of market share and dominate the market. These firms are typically large and well-established, and often have significant barriers to entry for new competitors. In an oligopoly, each firm is highly aware of the actions of the other firms and must take their behaviour into account when making decisions.
Examples of Oligopolies
Oligopolies exist in many industries, such as:
- Airlines
- Retail banking
- Consumer electronics
- Automobile manufacturing
- Soft drinks
One example of an oligopoly is the airline industry, where a small number of firms control the majority of the market. This oligopoly is made up of four major airlines: American Airlines, Delta Airlines, Southwest Airlines, and United Airlines. These four airlines account for over 80% of domestic air travel in the United States.
Impact of Oligopolies
Oligopolies can have a significant impact on the market, as the few firms within the oligopoly have the ability to set prices and control the supply of goods and services. This often leads to higher prices for consumers, as the firms within the oligopoly are able to maintain higher prices due to the lack of competition. Additionally, oligopolies often lead to less innovation, as the firms within the oligopoly have less incentive to innovate due to the lack of competition.
Conclusion
Oligopolies are a widespread market structure that can have a significant impact on the market. The few firms within the oligopoly have the ability to set prices and control the supply of goods and services, leading to higher prices for consumers and less innovation.
References:
- Oligopoly – https://en.wikipedia.org/wiki/Oligopoly
- Airlines – https://en.wikipedia.org/wiki/Airlines
- Barriers to entry – https://en.wikipedia.org/wiki/Barriers_to_entry