Oligopoly: Definition, Characteristics and examples
We can identify four major types of market structures. They are perfect competition, monopolistic competition, oligopoly, and monopoly. To see…
Oligopoly characteristics
Oligopoly Characteristics
In an oligopolistic market, a few companies are operating. Because there is a higher level of barriers to entry and exit from the market. There are two major types of factors that can block a firm from entering industry. They are Natural (Structural) Barriers to Entry and Artificial (Strategic) Barriers to Entry.
Since there are a few companies are operating, each company has a significant market share. So each company has a considerable monopoly power to control the market price and output.
Products of the oligopoly firms are either homogeneous or differentiated. One of the characteristics of an oligopoly is that its members are focused on improving product quality or providing benefits to distinguish their brand.
Collusive oligopoly and non-collusive oligopoly are two different types of oligopolies. A collusive oligopoly is a market scenario in which businesses collaborate to determine pricing or production, or both pricing and production. But in non-collusive oligopoly businesses are compete rather than collaborate.
So, each company interdepends on the actions of the other companies. This also can be identified as an imperfectly competitive market.
Companies in the oligopolistic market compete based on three ways. They are the objectives of the firms, degree of contestability, and government regulation.
In the oligopoly market firms depend on non-price methods. Such as advertising, after-sales services, warranties, etc. These non-price methods help to increase demand, brand recognition and gain competitive advantages