The most general definition describes oligopoly as a specific type of market characterized by imperfect competition. The peculiarity of economic regulation in an oligopoly is that any of the companies has the ability to influence pricing.
Market oligopoly is close to monopoly, although it has some mechanisms similar to competition. The point is not only that in a monopoly market there is weak competition between a few sellers, of which there are usually no more than ten, such a market usually acts as a closed system and does not allow new participants. As an example, we can recall the Russian market of cellular operators.
Features of oligopoly
You can recognize an oligopolistic market by the following characteristics:
- there are a small number of firms on the market, but at the same time there is a great demand - this market supply is realized by these firms for smaller users;
- the products of such firms can be standardized or differentiated;
- there are serious obstacles to the entry of new firms in such a market;
- producers are dependent on each other, therefore there is price control.
Oligopoly models
The first model is considered to be the model of oligopoly, which is based on collusion. However, firms may exhibit non-cooperative or cooperative behavior. In non-cooperative behavior, firms are inconsistent with each other, and such competition can lead to price struggles. When, on the oligopoly market, producers maintain joint cooperation and enter into negotiations, this contributes to fixed prices, this market situation is consonant with such concepts as a trust, a cartel.
In oligopolistic markets, as a rule, there is a leading firm, and it dictates prices, all other firms in the market are forced to adjust to its financial policy. Rival firms maintain the price set by the market leader. However, price leadership is a model of incomplete monopoly.
Price Leadership can be divided into two subtypes:
- the leader is a firm that has low costs in comparison with other competing firms,
- the manufacturer is the leader in the market, the level of costs of which is not very different from competitors.
It should be noted that oligopoly today dominates the modern market structure. Think of the world famous aircraft manufacturers such as Airbus or Boeing.
A feature of such a market can also be considered the fact that all firms on it directly depend on competitors, on their decisions, on their behavior. Significant benefits in conditions of oligopolistic competition depend precisely on mutual cooperation and on the ability to negotiate.