Question

) Discuss Oligopoly. Consider some of the following questions in your response:

What is an oligopoly?

Why do oligopolies form?

Do oligopolists enjoy market advantages not available to other firms?

In your response please identify 2 or 3 industries characterized by oligopoly ... like the soft drink industry pictured above!

Answer 1

What is an oligopoly?

Oligopoly is a market for certain product or services that is controlled by two or more firms and these firms have the large no. Of market share.

Important Characteristics of oligopoly are-

I) industry has significant barriers to entry

II) market is controlled and dominated by two or more large firms.

III) no unique pattern of pricing behaviour. One firm's pricing strategy can affect other firms.

Iv) firms sell identical or differentiated product.

Why do oligopolies form?

Oligopolies form when a small no. Of large firms have all or most of the sales in an industry and each firm is able to affect market conditions due to its size. Also, the difficulty to enter into the industry could be another reason for oligopoly formation.

Do oligopolists enjoy market advantage not available to other firms?

Yes.Since oligopoly consists of a few no. of large dominant firms and they have full control over the market, they are capable of setting prices as per their own choice. Because of barriers to entry these dominant firms earn long term profits in oligopoly market. Also, in an oligopoly market, products of two different companies sometimes derived out of one large firm and no Matter which firm makes profit, it finally ends up as profit of the parent firm. These types of market advantages is only possible in oligopoly market.

2 oligopoly market that can be given as example are-

I) Auto industry in the USA where there are a few leading auto manufacturers namely Ford, GMC, Chrysler.

II) Cellular phone service industry in which about 90℅ market is governed by four major service providers namely AT&T , T-Mobile, Nextel, Verizon Wireless. And the rest 10% is shared between other small service providers.