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Encyclopedia > Oligopoly

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived from the Greek for few sellers. Some industries which are oligopolies are referred to as the "Big Three" or the "Big Four." Because there are few participants in this type of market, each oligopolist is aware of the actions of the others. Oligopolistic markets are characterised by interactivity. The decisions of one firm influence, and are influenced by the decisions of other firms. Strategic planning by oligopolists always involves taking into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be at the highest risk for collusion. Image File history File links Broom_icon. ... In microeconomics, the main criteria by which one can distinguish between different market forms are: the number and size of producers and consumers in the market, the type of goods and services being traded, and the degree to which information can flow freely. ... Look up Market in Wiktionary, the free dictionary. ... The big three is a term used to refer to three large powers or companies: // February 2: The Big Three of the WWII Allies at the Yalta Conference: Winston Churchill, Franklin D. Roosevelt and Joseph Stalin. ... Big Four may mean: A nickname for a railroad in the United States of America officially called the Cleveland, Cincinnati, Chicago and St. ... == Strategic planning is an organizations process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. ... Look up collusion in Wiktionary, the free dictionary. ...


Oligopoly is a common market form. As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. Using this measure, an oligopoly is defined as a market in which the four-firm concentration ratio is above 40%. For example, the four-firm concentration ratio of the supermarket industry in the United Kingdom is over 70%; the British brewing industry has a staggering 85% ratio. In the U.S.A, oligopolistic industries include accounting & audit services, tobacco, beer, aircraft, military equipment, motor vehicle, film and music recording industries. In microeconomics, the main criteria by which one can distinguish between different market forms are: the number and size of producers and consumers in the market, the type of goods and services being traded, and the degree to which information can flow freely. ... In economics, the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. ... Exterior of a typical British supermarket (a Tesco Extra) Exterior of typical North American supermarket (a Safeway) This Flagship Randalls store in Houston, Texas is an example of an upscale supermarket. ...

Above the kink, demand is relatively elastic because all other firm’s prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and, incidentally, the kink point.
Above the kink, demand is relatively elastic because all other firm’s prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and, incidentally, the kink point.

In an oligopoly, firms operate under imperfect competition and a kinked demand curve which reflects inelasticity below market price and elasticity above market price, the product or service firms offer, are differentiated and barriers to entry are strong. Following from the fierce price competitiveness created by this sticky-upward demand curve, firms utilize non-price competition in order to accrue greater revenue and market share. Image File history File links Download high-resolution version (964x706, 29 KB) Diagram to illustrate the kink Average revenue curve and consequently demand curve of an oligopoly I, the creator of this work, hereby grant the permission to copy, distribute and/or modify this document under the terms of the... Image File history File links Download high-resolution version (964x706, 29 KB) Diagram to illustrate the kink Average revenue curve and consequently demand curve of an oligopoly I, the creator of this work, hereby grant the permission to copy, distribute and/or modify this document under the terms of the... Price war is a term used in business to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. ... In economic theory, imperfect competition, is the competitive situation in any market where the conditions necessary for perfect competition are not satisfied. ... The kinked demand curve theory is an economic theory regarding oligopoly and monopolistic competition. ... Sticky is a term used in the social sciences and particularly economics used to describe a situation in which a variable is resistant to change. ... Non-price competition is a selling strategy in which one firm tries to distinguish its product or service from all competing products on the basis of attributes like design and workmanship (McConnell-Brue, p. ...


Oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in markets for inputs where a small number of firms are competing to obtain factors of production. This also involves strategic interactions but of a different nature than when competing in the output market to sell a final output. Oligopoly refers to the market for output while oligopsony refers to the market where these firms are the buyers and not sellers (eg. a factor market). A market with a few sellers (oligopoly) and a few buyers (oligopsony) is referred to as a bilateral oligopoly. An oligopsony is a market form in which the number of buyers are small while the number of sellers in theory could be large. ...


In industrialized countries oligopolies are found in many sectors of the economy, such as cars, consumer goods, and steel production. Unprecedented levels of competition, fueled by increasing globalisation, have resulted in the emergence of oligopoly in many market sectors, such as the aerospace industry. Market shares in oligopoly are typically determined on the basis of product development and advertising. There are now only a small number of manufacturers of civil passenger aircraft. A further instance arises in a heavily regulated market such as wireless communications. Typically the state will license only two or three providers of cellular phone services.


Oligopolistic competition can give rise to a wide range of different outcomes. In some situations, the firms may collude to raise prices and restrict production in the same way as a monopoly. Where there is a formal agreement for such collusion, this is known as a cartel. Competition is the act of striving against others for the purpose of achieving gain, such as income, pride, amusement, or dominance. ... Look up collusion in Wiktionary, the free dictionary. ... A monopoly (from the Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service, in other words a firm that has no competitors in its industry. ... A cartel is a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. ...


Firms often collude in an attempt to stabilise unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be a real communication between companies) - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership. Look up collusion in Wiktionary, the free dictionary. ... Price leadership is an observation made of oligopic business behavior in which one company, usually the dominant competitor among several leads the way in determining prices, the others soon following. ...


In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater than when there are more firms in an industry if for example the firms were only regionally based and didn't compete directly with each other. Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. ...


The welfare analysis of oligopolies suffers, thus, from a sensitivity to the exact specifications used to define the market's structure. In particular, the level of deadweight loss is hard to measure. The study of product differentiation indicates oligopolies might also create excessive levels of differentiation in order to stifle competition. Welfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution associated with it. ... In economics, a deadweight loss (also known as excess burden) is a permanent loss of well being to society that can occur when equilibrium for a good or service is not Pareto optimal, (that at least one individual could be made better off without others being made worse off). ... In marketing, product differentiation is the modification of a product to make it more attractive to the target market. ...


Desoligopolization is the disappearance of an oligopoly.[citation needed]


Oligopoly theory makes heavy use of game theory to model the behaviour of oligopolies: Game theory is often described as a branch of applied mathematics and economics that studies situations where multiple players make decisions in an attempt to maximize their returns. ...

Heinrich Freiherr von Stackelberg (1905-1946) is an economist who contributed to game theory. ... A true duopoly is a form of oligopoly where only two producers exist in a market. ... The Stackelberg leadership model is a model of duopoly in economics. ... Antoine Augustin Cournot (28 August 1801‑ 31 March 1877) was a French philosopher and mathematician. ... A true duopoly is a form of oligopoly where only two producers exist in a market. ... Cournot competition is an economic model used to describe industry structure. ... Bertrand is the name of several persons: Alexander Bertrand (1820-1902), French archeologist. ... Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand (1822-1900). ... Monopolistic competition is a common market form. ...

See also

In microeconomics, the main criteria by which one can distinguish between different market forms are: the number and size of producers and consumers in the market, the type of goods and services being traded, and the degree to which information can flow freely. ... A true duopoly is a form of oligopoly where only two producers exist in a market. ... A triopoly is a form of oligopoly where only three producers are present in a given market. ... Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. ... In economics, a monopsony (from Ancient Greek μόνος (monos) single + ὀψωνία (opsōnia) purchase) is a market form with only one buyer, called monopsonist, facing many sellers. ... An oligopolistic reaction is a concept from economics introduced by Frederick T. Knickerbocker (Oligopolistic Reaction and Multinational Enterprise, Cambridge, MA: Harvard University Press, 1973) to explain why firms follow rivals into foreign markets. ... An oligopsony is a market form in which the number of buyers are small while the number of sellers in theory could be large. ... A monopoly (from the Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service, in other words a firm that has no competitors in its industry. ... A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy... This aims to be a complete list of the articles on economics. ... In game theory, the Nash equilibrium (named after John Forbes Nash, who proposed it) is a kind of solution concept of a game involving two or more players, where no player has anything to gain by changing only his or her own strategy unilaterally. ... Game theory is often described as a branch of applied mathematics and economics that studies situations where multiple players make decisions in an attempt to maximize their returns. ... A cartel is a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. ...

External links


  Results from FactBites:
 
Oligopoly Watch (6912 words)
Whatever the upshot (and I belive that some of theose craft brewers will come to regret their confidence), it's another example of oligopolies adapting to the innovations of others by copying them and confusing the market and watering-down (double meaning intended) the competition.
We have often noted that big, industry-leading companies are often poor at generating major innovations, ones that are not simply an improvement on an existing product or technology but rather one that has the potential to disrupt an industry.
Oligopolies grow to have influence over public policy t their profit.
Oligopoly Prices 1 (243 words)
The oligopoly firms will compete on price so that the price and profits will be the same as those of a P-competitive industry.
The oligopoly price and profits will be somewhere between the monopoly and competitive ends of the scale.
Oligopoly prices and profits are "indeterminate." That is, they may be anything within the range, and are unpredictable.
  More results at FactBites »

 
 

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