Oligopoly definition of oligopoly by the free dictionary. The three most important characteristics of oligopoly are. In an oligopoly, the companies are able to exercise considerable control over the industry and price the products as per their discretion. In simple terms oligopoly refers to competition among the few. Car industry economies of scale have cause mergers so big multinationals dominate the market. When a market is shared between a few firms, it is said to be highly concentrated. Oligopoly is a market structure in which a small number of firms has the large majority of market share. Difference between monopoly and oligopoly with example. Oligopoly theory lies at the heart of industrial organisation io since its object of study is the interdependence of firms. While the earlier ideas of cournot, hotelling, and chamberlin are presented, the larger part of the book is devoted to the modern work on oligopoly that has resulted from the application of dynamic techniques and game theory to this area. An oligopoly is similar to a monopoly, except that rather than one firm, two or more. Due to the small number of firms and lack of competition, this market structure often allows for partnerships and collusion.
Definition of oligopoly economics online economics online. This means that they form beliefs about what their rivals might do in. To convince courts that parallel behaviour has arisen through some kind of agreement rather than merely resulting from oligopolistic interdependence, competition. Dynamic games in nitelyrepeated cournot game 4 nash reversion is but one example of strategies which yield cooperative outcome in an in nitelyrepeated cournot game. In an oligopoly there is likely to be significant barriers to entry to new competitors. Information and translations of oligopoly in the most comprehensive dictionary definitions resource on the web. Oligopoly competition in the market with food products agricultural. Oecd glossary of statistical terms oligopoly definition. Classification of oligopoly oligopoly market can classified on following bases. In other words, the oligopoly market structure lies between the pure monopoly and monopolistic competition, where few sellers dominate the market and have control over the price of. Oligopoly is that situation in which a firm bases its markets policy in part on the expected behaviour of a few close rivals.
A market structure characterized by a single seller, selling a unique product in the market. Oligopoly falls between two extreme market structures, perfect competition and monopoly. As a result, firms behave strategically and try to anticipate the strategic interactions among each other. An oligopoly is a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies.
Each producer must consider the effect of a price change on the actions of the other producers. This kind of imperfect competition is characterized by having a relatively scarce amount of firms, but always more than one, which produce a homogeneous good. A key feature of oligopoly is the mutual interdependency of the leading suppliers, which has a major impact on the nature and intensity of their competitive relationships. Companies in technology, pharmaceuticals and health insurance. Oligopoly which also figured in the thesis, pp 6396 should be among the most interesting. The material was first published in the quarterly journal for 1929. Whether by noncompetitive practices, government mandate or technological savvy, these companies take advantage of their position to increase their profitability. Oligopoly is defined as a market structure with a small number of firms, none of which can keep the others from having significant influence. A market is oligopolistic if it is dominated by a few firms. Oligopoly as a market structure is distinctly different from other market forms. An oligopoly is a market form with limited competition in which a few producers control the majority of the market share and typically produce similar or homogenous products. Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. When the market is dominated by a few suppliers, it is termed as oligopoly.
The phrase oligopoly is derived from the greek language and means few sellers. The oligopoly market characterized by few sellers, selling the homogeneous or differentiated products. Much of traditional microeconomics presumes that firms act as passive pricetakers, and thus avoids the complex issues involved in. Oligopoly definition and meaning collins english dictionary. The number of firms is small enough to give each firm some market power. Simply, monopoly is a form of market where there is a single seller selling a particular commodity for. An oligopoly is an industry dominated by a few large firms. Oligopoly characteristics economics online economics. Hirschmanherndal index note that the hhi only measures market power under the assumptions of the cournot model if the market involves di. Oligopoly, market situation in which each of a few producers affects but does not control the market. It is an economic situation where there is a small number of firms, selling competing products in the market. Oligopoly example lets assume that company xyz, company abc, and company 123 produce 95% of the countrys carrots. Oligopoly definition in the cambridge english dictionary.
An oligopoly is a noncompetitive market form that is characterized by the presence of few numbers of buyers and relatively more numbers of sellers. Stigler, oligopoly is the market in which the firm bases its market policy, in part, on the expected behaviour of a few close rivals. Although only a few firms dominate, it is possible that many small firms may also operate in the market. Under perfect competition, monopoly, and monopolistic competition, a seller faces a well defined demand curve for its output, and should choose the. An oligopoly is a market structure in which a few firms dominate. Impure because have both lack of competition and product differentiation as sources of market power. It can be observed in the television industry of the united states, where the market is governed by a handful of market players. An oligopoly is defined as a market structure with a few firms and barriers to entry. Oligopoly often leads to collusion among manufacturers. We have not found a proper definition of a tight oligopoly in the economic. Stigier an oligopoly is a market of only a few sellers, offering either homogeneous or differentiated products. Oligopoly environment relatively few firms, usually less than 10. Oligopoly occurs when a few firms dominate the market for a good or service.
In oligopoly, the most relevant aspect is the behaviour of the group. Overview and quantity competition with large fixed costs by eric maskin and jean tirole the paper introduces a class of alternatingmove infinitehorizon models of duopoly. This fact is recognized by all the firms in an oligopolistic industry. Oligopoly definition oligopoly is defined as a market situation in which there are a few sellers or producers dealing in either the homogeneous or differentiated products. A nash equilibrium in an oligopoly competition is given by a price vector pn and quality vector gn such that each firm maximizes its profit. There can be two firms in the group, or three or five or even fifteen, but not a few hundred. For example, an industry with a fivefirm concentration ratio of greater than 50% is considered a monopoly. This implies that when there are a small number of competing firms, their marketing decisions exhibit strong mutual interdependence. James friedman provides a thorough survey of oligopoly theory using numerical examples and careful verbal explanations to make the ideas clear and accessible.
Due to the small number of firms in the market, the. Oligopoly can be defined as a market model of the imperfect competition type, assuming the existence. An oligopoly is an economic market whereby a small number of companies or countries generate and control the entire supply of a good or service. The monopoly is a market structure characterized by a single seller, selling the unique product with the restriction for a new firm to enter the market. A reaction function for firm i gives its best response given what the. Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. Industrial organization matt shum hss, california institute of technologylecture 5. An oligopoly market situation is also called competition among the few. Chapter 9 basic oligopoly models university of baltimore. A satisfactory theory of oligopoly can products between which the. In other words, the oligopoly market structure lies between the pure monopoly and monopolistic competition, where few sellers dominate the market and have control over the price of the product. Oligopoly requires strategic thinking, unlike perfect competition, monopoly, and monopolistic competition. In this chapter we continue our study of market structure by. Whatever the number, it is quite small so that each firm knows that its actions will have some effect on other firms in the group.
The advantages and disadvantages of this market form can be clearly demarcated. Presence of few companies in an industry does not negate existence of competition. In a monopoly market, the seller faces no competition, as he is. Oligopoly definition is a market situation in which each of a few producers affects but does not control the market. The nash equilibrium is often defined using the concept of a reaction function. Oligopoly oligopoly is a market structure in which the number of sellers is small.
Oligopoly definition oecd glossary of statistical terms. A cut in price by one may lead to an equal reduction by the others, with the result that each firm will retain approximately the same share of the market as before but at a lower profit margin. Thus, industries like oligopolies are dominated by a small number of manufacturers that may. New results in game theory have often been applied first in the area of oligopoly for example, the application of mixed strategies in the 1950s. Examples of oligopolistic industries include automobiles, steel, aluminum, petrochemicals. The principal advantages and disadvantages of oligopoly. Oligopoly means the market having few producers which sell identical or substitute products and there is a extreme competition among the few firms. Oligopoly definition of oligopoly by merriamwebster. The important difference between the model of an oligopoly and the model of a perfectly competitive market is that firms in oligopoly can influence market outcomes. An oligopoly is a market characterized by a small number of firms who realize they are interdependent in their pricing and output. The oligopoly exists in the market, where there are 2 to 10 sellers, selling identical, or slightly different products in the market. An oligopoly is a firm in a given market with a few competitors.
313 386 1634 333 1134 1000 1001 71 867 1307 345 1581 1142 1116 1570 1101 253 1531 1604 1199 647 629 1512 9 1253 656 1543 525 1154 8 1064 68 279 1016 1078 332 1094 224