Oligopoly CHAPTER 13B. After Studying This Chapter You Will Be Able To Define And Identify

Cover Two Examples of Oligopoly Oligopoly Opec (768x1024)

Table of Contents

• What is an Oligopoly?
• How does an Oligopoly Work?
• What are the Characteristics of an Oligopoly?
• Examples of Oligopolies
• What are the Advantages and Disadvantages of an Oligopoly?

What is an Oligopoly?

An oligopoly is a market structure where a few large firms dominate the market. These firms have considerable market power and can influence the market price of goods and services. In an oligopoly, the market is controlled by a small number of firms, which means that they can cooperate or compete with each other to maximize profits.

In an oligopoly, firms usually produce goods that are differentiated from each other, but they can also produce similar goods. This means that firms have to engage in non-price competition to attract customers. Non-price competition can take the form of advertising, product differentiation, and customer service.

How does an Oligopoly Work?

In an oligopoly, the market is dominated by a few large firms that have considerable market power. These firms can influence the market price of goods and services by either cooperating or competing with each other.

If firms cooperate with each other, they can form a cartel to regulate the market price. Cartels are agreements between firms to limit competition by controlling the production and distribution of goods and services. Cartels can be illegal, and they are usually regulated by governments to prevent monopolistic behavior.

If firms compete with each other, they can engage in price wars to attract customers. Price wars occur when firms lower their prices to attract customers, and this can lead to lower profits for all firms in the market. Firms can also engage in non-price competition to attract customers by differentiating their products, improving customer service, and investing in advertising.

What are the Characteristics of an Oligopoly?

There are several characteristics of an oligopoly:

• A few large firms dominate the market.
• Firms have considerable market power.
• Firms engage in non-price competition.
• Firms can cooperate or compete with each other to maximize profits.
• Firms can form cartels to regulate the market price.
• Firms can engage in price wars to attract customers.

Examples of Oligopolies

There are many examples of oligopolies in different markets:

• The automobile industry is dominated by a few large firms, such as General Motors, Ford, and Toyota.
• The airline industry is dominated by a few large firms, such as American Airlines, Delta, and United.
• The soft drink industry is dominated by a few large firms, such as Coca-Cola and PepsiCo.
• The retail industry is dominated by a few large firms, such as Walmart and Amazon.

What are the Advantages and Disadvantages of an Oligopoly?

There are several advantages and disadvantages of an oligopoly:

Advantages:

• Oligopolies can benefit from economies of scale, which means that they can produce goods and services at a lower cost than smaller firms.
• Oligopolies can invest in research and development to improve their products and services.
• Oligopolies can benefit from non-price competition, which can lead to innovation and better customer service.

Disadvantages:

• Oligopolies can limit competition, which can lead to higher prices and lower quality goods and services.
• Oligopolies can engage in anti-competitive behavior, such as price-fixing and market allocation.
• Oligopolies can reduce consumer choice by dominating the market.

Conclusion

An oligopoly is a market structure where a few large firms dominate the market. These firms have considerable market power and can influence the market price of goods and services. In an oligopoly, firms usually engage in non-price competition to attract customers, and they can cooperate or compete with each other to maximize profits.- 79Heather
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There are advantages and disadvantages of an oligopoly, and it is important for governments to regulate oligopolies to prevent monopolistic behavior and to protect consumers.