Dive into the captivating domain of oligopoly markets with our enlightening blog. Embark on a journey to understand the intricate interplay of competition and cooperation in an industry dominated by a select few. Explore how giants vie for supremacy, crafting strategies that shape prices, innovation, and consumer experience.
Uncover the enigma of strategic alliances and the delicate balance between rivalry and collusion. Whether you’re a curious learner or a business enthusiast, join us as we unravel the mysteries of oligopoly, shedding light on its impact on economies, industries, and decision-making processes worldwide. Welcome to a world of strategic complexities!
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An oligopoly is a particular kind of market structure found in an economy. A few businesses dominate the market in an oligopoly. One of an oligopoly’s main traits is that none of these businesses can prevent the other(s) from having a sizable impact on the market.
The concentration ratio calculates the largest companies’ percentage of the market. An oligopoly can have as many firms as it wants, but the number must be so low that each firm’s decisions greatly impact the others. As a market with only one producer, a monopoly is distinct from an oligopoly.
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It’s time to examine the features of an oligopoly now that the definition of oligopoly has been clarified:
On the other hand, it’s unclear how the competitors will respond. The demand curve is uncertain because competitors may respond differently when a firm alters its price.
In the marketplace, oligopolies are prevalent.
However, when it comes to global oligopoly, there’s no better example than the Organization of the Petroleum Exporting Countries (OPEC). The group was established in Baghdad in 1960 with five countries, but in 1975 it had grown to include 13 oil-producing nations.
Since it lacks a supreme authority, OPEC is frequently referred to as an oligopoly. The group’s market share belongs to each member country in equal measure.
When it comes to concerns with price and supply and demand, these nations collectively (and not individually) have much power. Price increases, therefore, result from the group reducing its supply when demand declines. When demand increases, the opposite is accurate.
Each firm in an oligopoly is motivated to cheat, which is the businesses’ main issue. Imagine that the oligopoly’s participating businesses agree to limit supply and maintain high prices collectively. Each company would then stand to gain significantly more business from the others by breaching the contract and undercutting them.
Businesses occasionally make an effort to reduce the risk associated with acting independently and making price agreements with one another. That is collusion. Either official or informal collusion occurs.
Price leadership or cartel behavior are two examples. A cartel is an organization of separate businesses operating in the same sector that adhere to the same rules on product distribution, output, price, and profit maximization.
The foundation of price leadership is deliberate collusion. When there is price leadership, one large or dominating company sets the product price while the other companies agree to it.
Below is the difference between Collusive vs. Non-Collusive Oligopoly
Parameters | Non-Collusive Oligopoly | Collusive Oligopoly |
---|---|---|
Definition | Every company within the industry adopts and decides on an output policy and price independent of the competitors. | Companies cooperate and reject the sense of competition regarding price and output policy. |
Objective | To keep up with the competition while running the business independently. | Lower the competition level by making and putting entry barriers into Effect. |
Profit | Individual | Collective |
Monopoly Formation | No | Yes |
Price Benefits | Higher price benefits for consumers due to the competition. | Minimal price benefits for consumers due to monopoly |
In the market, complete competition does not exist. However, there are other market structures, such as oligopolies. Small numbers of participating companies that collaborate to establish prices define these markets.
Companies profit from the lack of competition while customers access higher-quality goods and services. If you want to learn more concepts like oligopoly, an online certification course in the relevant field would be a way to go.
For instance, HeroVired’s Financial Analysis, Valuation, & Risk Management Course can help you learn more about such markets and the financial implications of doing in such markets.
You may never know when your business will decide to enter an oligopoly market. So, why not stay relevant and updated with such knowledge with HeroVired? For those new to the financial market, check out this HeroVired blog on Financial Market: Meaning, Definition, Types, Functions today!
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