Summary by :
Megawati (120720140031)


An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. With few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm therefore influence and are influenced by the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants.

Characteristics of oligopoly :
  • Profit maximization conditions. An oligopoly maximizes profits.
  • Ability to set price. Oligopolies are price setters rather than price takers.
  • Entry and exit. Barriers to entry are high, for examples, government licenses, economies of scale, and patents.
  • Number of firms. "Few" – a "handful" of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms.
  • Long run profits. Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering market to capture excess profits.
  • Product differentiation. Product may be homogeneous (steel) or differentiated (automobiles).
  • Perfect knowledge. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price, cost and product quality.
  • Interdependence. The distinctive feature of an oligopoly is interdependence.
  • Non-Price Competition. Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition.
Some of the better-known models describing the operation of an oligopolistic market are the dominant firm model, the Cournot-Nash model, the Bertrand model and the kinked demand model.
Examples of oligopoly in the world :
  • NestlĂ©, The Hershey Company and Mars, Incorporated together make most of the confectionery made worldwide.
  • Microsoft, Sony, and Nintendo dominate the video game console market.
References : http://en.wikipedia.org/wiki/Oligopoly
[accesed : 30/08/2014]