Oligopoly | Characteristics of Oligopoly | Advantages & Disadvantages of Oligopoly

Oligopoly

The term oligopoly is derived from Greek words: ‘oligi’ means few and ‘polein’ means sell. Oligopoly is a market structure in which there are only a few sellers of the homogeneous or differentiated products. So, oligopoly lies in between monopolistic competition and monopoly. Oligopoly refers to market situation in which there are a few firm selling homogeneous or differentiated products.

Oligopoly is sometimes, also known as competition among the few as there are few seller in the market and every seller influences and is influenced by the behaviour of the other firm

Characteristics of Monopoly

1. Small number of large firms

The most important characteristics of oligopoly is an industry dominated by a small number of large firms, each of which is relatively large compared to the overall size of the market. This characteristic gives each the relatively large firm substantial market control

2. Identical or differentiate product

Some oligopolistic industry produce identical products, like perfect competition in this regards while other produce differentiated products, more like monopolistic competition. This characteristic might seem to be a bit wishy-washy, taking both sides of the product differentiation issue.

3. Barriers to entry

Firms in an oligopolistic industry attain and retain market control through barriers to entry, the most noted entry barriers are

a. Exclusive resources ownership

b. Patent and copyright

c. Other government

d. High start-up cost

Barriers to entry are the key characteristics that separate oligopoly from monopolistic competition in the market structure. With few if any barriers to entry firms can enter a monopolistically competitive industry when existing firms receive economic profits this diminishes the market control of any given firm.

Advantages of Oligopoly

1. More information, better product

One of the advantages of an oligopoly is that companies within them complete them for customers through advertising. These campaign save consumers time and money in searching for and learning about products and services

2. High profits

Since there is such little competition, the companies that are involved in the market have the potential to bring a large amount profit. The services and goods that are controlled through oligopolies are generally highly needed or wanted by the large majority of the population.

3. Simple choice

Having only a few companies that offer goods or services that you are looking for makes it easy to compare between them and choose the best option for you.

4. Competitive prices

Being able to easily compare prices forces these companies to keep their prices in competition with the other companies involved in the market. This is a great benefit for the consumers because prices continually go lower as other companies.

Disadvantages of Oligopoly

1. Difficult to forge a spot

For small business and other people with creative ideas in an oligopoly market, the outlook for their business is grim. Extremely large and advanced companies completely control the market, making it nearly impossible for small or new business to break into the market place.

2. Less choice

In many cases having to choose a company in an oligopoly is like choosing the lesser evil. The consumers have limited choice and option for the service that they want. This is one of the biggest pitfalls of an oligopoly.

3. Fixed prices are bad for consumers

While competitive prices come into play, they are rarely very far apart from any other company that they could go with. This is because and corporations that are part of the market agree to fix prices.

4. No fear of competition

Often times the companies that are in the oligopoly market becomes very settled with their business