Moreover, it is difficult for firms to coordinate actions, and there is a threat that firms may defect and undermine the others in the arrangement. In conclusion, Disney is neither an oligopoly nor a monopoly. In oligopoly markets there is tension between cooperation and self-interest. Hence, oligopoly has an influence on the way the company behaves. An oligopoly is much like a monopoly, in which only one company has control over most of a market.
Coca-Cola and Pepsi are oligopolistic firms that collude to dominate the soft drink market. In this scenario, both firms have the choice to set their prices high or low, and the potential profits for both firms are listed in the matrix.
National mass media and news outlets are a prime example of an oligopoly, with the bulk of U. Wal-Mart is indeed an oligopoly because there are only a few firms in the United States that dominate the retailing business. Target is in the retail market and is considered an oligopoly. They sell everything from electronics to clothes, to groceries. In those industries where there is a lot of mechanization and where economies of large scale are considerable a few firms will survive.
The firms attain such a huge size that a few of them can satisfy the entire demand. For example, automobiles, steel industry, petroleum etc. Oligopolies are also found in local markets. In small towns, a few firms may be sufficient to satisfy the demand, e. The market is small and therefore can be satisfied by a few firms. In some industries there may be some superior entrepreneurs whose costs are lower than inferior rivals.
These entrepreneurs under sell and eliminate most of their rivals. Many oligopolies have been created by combining two or more independent firms. The combination of two or more firms into one firm is known a merger. The main motives of mergers include increasing market powers, more resources, economies of scale and market extensions etc.
Lastly, oligopoly may come to exist because of difficulties of entry into the industry. One big difficulty in some industries is the large requirements of capital. Businessmen do not like to venture into those industries entry to which, even of one firm, is likely to depress prices to such an extent as to make it unprofitable for all. They may also be afraid of the price war that their entry may provoke from the established firms in the industry. Prospective entrants to an industry are also deterred by the difficulty of marketing new products or new brands in the presence of already well- established, well entrenched brands.
Rather, they are oligopolies. Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag. They can either scratch each other to pieces or cuddle up and get comfortable with one another.
If oligopolists compete hard, they may end up acting very much like perfect competitors, driving down costs and leading to zero profits for all. Oligopolies exist naturally or can be supported by government forces as a means to better manage an industry. Customers can experience higher prices and inferior products because of oligopolies, but not to the extent they would through a monopoly, as oligopolies still experience competition.
The majority of the industries in the U. Library of Congress. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Economy Economics. Table of Contents Expand. Historical Examples of Oligopolies. Industry Consolidation on the Rise. Media Conglomerates. Wireless Carriers. The Big 3 Music Labels. Domestic Airlines. Market Structures on a Spectrum. Frequently Asked Questions. The Bottom Line. Key Takeaways An oligopoly is when a market is shared by only a small number of firms, resulting in a state of limited competition.
Since the s, it has become more common for industries to be dominated by two or three firms as merger agreements between major players have resulted in industry consolidation.
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