Effect of Oligopoly on Economy
OLIGOPOLY
INTRODUCTION
In this topic the oligopoly form of market is studied. You will learn that fewness of firms in a market results in mutual interdependence. The fear of price wars is verified with the help of the kinked demand curve. Collusive forms and non-collusive forms of market are analyzed. The economic effect of the oligopoly form of market is presented.
OLIGOPOLY CHARACTERISTICS
The oligopoly form of market is characterized by
- a few large dominant firms, with many small ones,
- a product either standardized or differentiated,
- power of dominant firms over price, but fear of retaliation,
- technological or economic barriers to become a dominant firm,
- extensive use of nonprice competition because of the fear of price wars. All "big" business is in the oligopoly form of market. Being a major corporation almost automatically implies that the company has means of controlling its market.
OLIGOPOLY CONCENTRATION
An oligopoly form of market is characterized by the presence of a few dominant firms. There may be a large number of small firms, but only the major firm have the power to retaliate. This results in a high concentration of the industry in only 2 to 10 firms with large market shares.
The gasoline industry is an oligopoly in the United States: it is dominated by a few giant firms such as Exxon, Mobil, Chevron and
Texaco. Note, however, that many small firms exist in the market: small independent gas stations which sell in just one city or just a limited region.
OLIGOPOLY CONCENTRATION CAUSES
The most notable causes for the high concentration in oligopoly type of markets are
- economies of scale present in production of certain goods,
- business cycles eliminating weak competitors,
- benefits from firms merging, and
- other barriers such as technological development and advertising. The history of the U.S. automobile manufacturing shows a continuous process of increasing concentration of the market in the hands of the big 3: G.M., Ford
INTRODUCTION
In this topic the oligopoly form of market is studied. You will learn that fewness of firms in a market results in mutual interdependence. The fear of price wars is verified with the help of the kinked demand curve. Collusive forms and non-collusive forms of market are analyzed. The economic effect of the oligopoly form of market is presented.
OLIGOPOLY CHARACTERISTICS
The oligopoly form of market is characterized by
- a few large dominant firms, with many small ones,
- a product either standardized or differentiated,
- power of dominant firms over price, but fear of retaliation,
- technological or economic barriers to become a dominant firm,
- extensive use of nonprice competition because of the fear of price wars. All "big" business is in the oligopoly form of market. Being a major corporation almost automatically implies that the company has means of controlling its market.
OLIGOPOLY CONCENTRATION
An oligopoly form of market is characterized by the presence of a few dominant firms. There may be a large number of small firms, but only the major firm have the power to retaliate. This results in a high concentration of the industry in only 2 to 10 firms with large market shares.
The gasoline industry is an oligopoly in the United States: it is dominated by a few giant firms such as Exxon, Mobil, Chevron and
Texaco. Note, however, that many small firms exist in the market: small independent gas stations which sell in just one city or just a limited region.
OLIGOPOLY CONCENTRATION CAUSES
The most notable causes for the high concentration in oligopoly type of markets are
- economies of scale present in production of certain goods,
- business cycles eliminating weak competitors,
- benefits from firms merging, and
- other barriers such as technological development and advertising. The history of the U.S. automobile manufacturing shows a continuous process of increasing concentration of the market in the hands of the big 3: G.M., Ford