 Definition Oligopoly. Description.
An Oligopoly is the market situation or structure in
which a small number of producing and selling companies supply a high percentage
of the market.
Typical for oligopolists is that the decisions and strategies
of one firm influence, and are influenced by, the decisions of other firms.
As a result, the firms operate economically under imperfect competition. This
typically gives them the possibility to make pricing agreements and/or reduce
production (Cartel). When one firm has
a dominant position in the market the oligopoly may experience price leadership.
The firms with lower market shares may simply follow the pricing changes prompted
by the dominant firm. On the other hand, sometimes competition between sellers
in an oligopoly can be fierce.
As a rule of thumb, when the four largest firms in an industry
have a total market share of more than 40%, the four companies making up this
market share are considered oligopolists.
The term should not be confused with Oligopsony: the
market situation or structure in which the number of buyers are small and
powerful.
As a result of fierce competition, in developed countries
oligopolies can be found in many sectors. Examples of oligopolies include
the aircraft, cellular phones, computer chips, cars, cigarettes and detergents
industries.
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Compare with:
Horizontal Agreement
| Vertical Agreement
| Cartel |
Horizontal Integration
| Horizontal Merger
| Five Forces |
ADL Matrix |
Penetration Pricing
| Competitive Pricing
| Barriers to Entry
| Competitive Environment
| Competitive Position
| Sustainable
Competitive Advantage
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