Oligopoly: Meaning, Types, Characteristics, Examples, and Key Insights

Adani is the second-richest man in India, after Reliance Industries’ Mukesh Ambani. His personal wealth has more than doubled to $32 billion compared to Mukesh’s $75 billion in the last one year. Adani owns a group of companies in varied businesses – ports, power, food and airports. It has also won the right to upgrade and operate six airports – Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvananthapuram and Mangaluru – for 50 years. GMR, which handles three airports – Delhi, Hyderabad and Goa – is the only other airport operator handling more than one airport. In the recent past both the companies took aggressive steps and signed on thousands of new retailers in a drive into rural India that has pushed up sales steeply.

Due to less number of sellers in the market, the competition gets more intense; and, because of intense competition in the market decision of one firm affects the entire industry. Which makes the firms to keep in check with other firms activities and behaviour. Differentiated or imperfect oligopoly market refers to the market which is having different products.

Through the lens of these three towns, we see the intricacies of different market structures. Monopolistic competition thrives on variety but requires constant innovation. An oligopoly offers stability, but at the cost of competition and progress. Here, a small handful of very powerful corporations controlled nearly everything. There were just a few grocery chains, three airlines, two major banks, and four car manufacturers. Each of these businesses was massive, with more influence and reach than any single company in Competeville or Duoville.

Fixing of products price:

• For example, if an airline cuts ticket prices, other players typically follow suit.
• Because there is no dominant force in the industry, companies may be tempted to collude with one another rather than compete, which keeps non-established players from entering the market.
• If a firm tries to reduce the price, the rivals will also react by reducing their prices.
• Sony Music is the largest of these “Big Three,” generating an annual revenue of over $7.27 billion.
• When companies within the same industry work together to increase their mutual profits instead of exclusively competing with one another, it is known as an oligopoly.

Combined, these airlines fly just over 65% of all domestic passengers. The next single carrier that flies the largest share of passengers, Alaska Airlines, flies just over 6% of all domestic passengers in the United States. Some of these include well-known or household names in key industries or sectors. I am a professional technology and business research analyst with more than a decade of experience in the field.

Understanding Oligopolies

• The presence of large unutilized capacity also reinforces supply not being fully responsive to demand.
• This can trigger a downward price spiral, reducing profits for all firms involved.
• While not a single-company-dominated monopoly, oligopolies erect significant barriers to entry, effectively keeping out new upstarts from becoming competitors.
• Since their a limited number of firms in an oligopoly market, it makes it convenient for the consumers to compare between them and choose the best option for you.
• However, if it tries to raise the price, other firms might not do so.

The number of firms is limited in the case of oligopoly which becomes a disadvantage for the consumer. In many cases, the consumer has to choose the firm which is the least evil in the case of providing services. Afterwards, prices are increased to 24 per unit, which gives loss to the firm (a large part of the market), and sales of the firm are 140 units which cause a loss of 100 units. For example, an oligopoly firm price for output is 20 per unit, and they sell 240 units of production.

Role of Selling Costs:

Firms use other methods like advertising, better services to customers, etc. to compete with each other. Interdependence is a defining feature of an oligopoly and profoundly influences firm behavior. Each firm’s decision about pricing, output, advertising, or investment must consider the likely reactions of its rivals. This often leads to strategic planning, where firms anticipate competitors’ moves, resulting in either non-price competition (like product differentiation or advertising campaigns) or occasional price wars.

Operating Systems Of Computing Devices

They have the largest market shares and can often merge their services and prices to offer similar advantages for the consumers without wiping each other out, trying to outshine one another. However, they try to avoid price competition for the fear of price war. Price rigidity refers to a situation in which price tends to stay fixed irrespective of changes in demand and supply conditions.

Change in prices of one firm compiles other firms to do the same to keep their market share. So, the differences between the price of products will be insignificant. Hence, the interdependence among sellers decreases in the case of a differentiated oligopoly market. The limited number of firms in an oligopoly is primarily due to significant barriers to entry. These barriers can include high capital requirements, advanced technology needs, economies of scale enjoyed by existing firms, strong brand loyalty, and sometimes government regulations. These factors make it challenging for new firms to enter and compete effectively with established players.

In an oligopoly, firms are interdependent, so the actions of one firm can significantly affect the others. By cooperating, they can collectively set prices higher or reduce output to boost profitability. The impact of a few dominant players in the market on consumers depends largely on how effectively the government regulates cartelization. For instance, China boasts of being a manufacturing giant, where dominant public sector manufacturing units, by scaling up production, effectively pass on the benefits to consumers in the form of lower per unit prices. While these companies are still technically considered competitors within their particular market, they also tend to cooperate or coordinate with each other to benefit the group as a whole. For example, instead of competing to attract customers by lowering prices or offering better contracts, they may all use similar contracts or keep prices around the same level.

Competitive Examinations

The United States has more than 3,300 electric utility companies, with about 200 of them providing power to the majority of people. With a small group of firms, every oligopolist is aware of the actions of others. Decisions made by one company impact the decisions of its competitors and vice versa. Check the score based on the company’s fundamentals, solvency, growth, risk & ownership to decide the right stocks. The computer technology sector in the technology sector applies as a good example of oligopoly. Let us list out the computer operating software, and we will find out the two prominent names Apple and Windows.

Media Industry

The bigger players have access to massive capital, advanced technology, and extensive distribution networks, which is outside the reach of the smaller players. However, the survival of small and medium enterprises (SMEs) is crucial for job creation and sustaining mass consumption. Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, and Intel are collectively responsible for a significant portion of semiconductor production. They invest heavily in R&D to advance semiconductor manufacturing processes and techniques. Google, primarily through its subsidiary YouTube, controls the online video-sharing and social media space.

Jio’s introduction of free content, Airtel’s 4G network expansion, and Vodafone Idea’s loyalty programs are examples of this strategy. However, this meant that real competition in Oligotown was scarce. Prices weren’t as low as they might have been in a fiercely competitive environment, and innovation moved at a slower pace. The people oligopoly examples in india of Oligotown often felt like they were at the mercy of these corporations.