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Oligopoly is a structure of the market with a little number of firms and none of them can keep others from having a remarkable effect. It is meant a couple of or more than two firms and there isn’t any particular upper limit to the total number of firms present in an oligopoly.

It is very important because when a new firm proposes much low prices it jeopardizes the longevity of the profits of colluding firms. In many markets, antitrust laws exist for preventing price collusion and protecting consumers. And so, firms have devised many ways to accomplish price collusion without getting noticed by regulators.

For instance, a firm might choose a price leader that gets the job of leading alterations in costs before another firm follows suit. Again, firms might also decide to alter their costs on particular data. In this situation, the alterations are witnessed as a reaction to some economic conditions, like fluctuations that happen in inflation.

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More Information on Oligopoly

Oligopolies in history comprise oil companies, steel manufacturers, grocery store chains, wireless carriers, and tire manufacturing. The legal and economic concern is oligopolies are capable of blocking new entrants, increasing prices, and slowing innovations and these things end up doing harm to consumers.

A firm in an oligopoly sets costs under the leadership of a firm or the leadership in place of taking costs from the market. And so, the margins of profit tend to be higher in comparison to what it tends to be in a competitive market.

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Features of Oligopoly

Some firms – Under Oligopoly, you will find only some large firms though the precise number of firms remains undefined.

Hindrances to entry – When it is a situation of Oligopoly, firms can earn a super-normal profit because there are some barriers to entry such as licenses, patents, control over vital raw materials, etc.

Interdependence – In the situation of Oligopoly, as some firms hold a remarkable share in the entire industry’s output, every firm gets affected by the output decisions and price of the rival firms.

Non-price competition – A firm tries to avert price competition because it fears the price wars that go on in an oligopoly. And so, they become dependent on some non-price processes, such as after-sales services, advertising, warranties, and much more.

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