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An oligopoly (Greek, ‘few sellers’) occurs where a few producers dominate an industry. Sometimes they collude in a cartel, producing results similar to a monopoly: sometimes they are anti-competitive only by default, because they fear that direct competition would damage all of them. Their actions, therefore, try to take account of the reaction of other oligopolists; since that is uncertain, the behaviour of an oligopoly is hard to predict. If a price war breaks out, oligopolists will produce and price much as a perfectly competitive industry would; at other times they act very like a monopoly.
Homogeneous, or pure, oligopoly involves rivalry among a few producers of products which are identical with one another. Differentiated oligopoly involves rivalry among a few producers of products which are similar (in the eyes of the purchasers) but not identical. Monopolistic competition is another kind of market which also comprises rivalry among producers of differentiated products, but the market contains a large number of producers rather than just a few.
Oligopoly is considered a common market condition. A localized example of interdependence among a few is the location of three petrol stations on three corners of a rural intersection. If one lowers the price per gallon the others will follow or lose most of their business. Examples in national markets include the automobile industry, the tyre industry, the steel industry and the beer industry. Some small firms may operate at the periphery in national markets dominated by a few, with their actions failing to elicit any reactions, but a giant firm must anticipate reactions from its fellows when it introduces a change. TF
See also game theory; oligopsony. |
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