OLIGOPOLYRP Pamplona

OLIGOPOLY Etymology

Oligo meaning small number; few Monopoly

OLIGOPOLY An oligopoly is a market form in which a

market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. ©Wikipedia

OLIGOPOLY Number of Sellers

“Few” – a “handful” of sellers. There are so few firms that the actions of

one firm can influence the actions of the other firms.

OLIGOPOLY Nature of Product Differentiation

Homogenous (steel/aluminum) Differentiated (automobiles)

OLIGOPOLY Ability to Enter and Exit the

Industry Barriers to entry are high such as

government licenses, economies of scale, access to expensive and complex technology, and strategic actions.

Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market.

OLIGOPOLY Degree of Control on Product Price

Oligopolies are price setters rather than price takers.

OLIGOPOLY Promotions (Non-price competition)

Oligopolies tend to compete on terms other than price.

Loyalty schemes Advertisements Product Differentiation

OLIGOPOLY Cartel (collusion)

an agreement between competing firms to control prices or exclude entry of a new competitor in the market. It is a formal organization of sellers or buyers that agree to fix selling prices, purchase prices, or reduce production using a variety of tactics.

It usually arises in oligopolistic industry, where the number of sellers is small and the products being traded are usually commodities.

The aim of such collusion is to increase individual members’ profits by reducing competition.

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Government is involved to enforce the cartel agreement, and the government’s sovereignty shields such cartel from legal actions.

Work to pass on benefits to the populace as a whole.

Private cartels are subject to legal liability under the antitrust laws.

Purpose is to benefit only those individuals who constitute it.

Public cartel Private cartel

OLIGOPOLY Price Leadership

There may be an acknowledged market leader which informally sets prices to which other producers respond.

Interdependence Oligopolies are typically composed of large

firms that the actions of one firm affect market conditions.

Each firm must be intelligent enough to guess what will be the possible responses and countermoves of their competitors.

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Examples Worlwide

Kraft Foods, PepsiCo, and Nestlé – top three leading food processing companies

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Nestlé, The Hershey Company, and Mars, Incorporated – make most of the confectionery made worldwide

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Microsoft, Sony, and Nintendo – dominate the video game console market

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