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What is an Oligopoly Market: Meaning Features

Updated on November 14, 2015
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IRSHAD CV has been a student in Economics. Now he is doing Masters in Economics. He completed B.A. Economics from the University of Calicut.

Oligopoly industries requires heavy investment
Oligopoly industries requires heavy investment | Source

There are different forms of market systems. Oligopoly market is one of the most important forms market system, which widely prevails in reality.. By meaning ‘An oligopoly market exists, when there are few sellers ( two or more, but not many) supplying commodities for large number of buyers.

The word ‘Oligopoly’ is derived from two Greek words, ‘Oligoi’ and ‘Poly’ meaning for ‘few’ and ‘seller’ respectively.As mentioned above, there will be more than two producers or sellers. The oligopoly market is known as Deopoly market, when there are two sellers or producers.

Oligopoly is the most real form of market explained in Economics. So its analysis is also very important to know the working of various industries. Today’s industries like, smart phones, laptop and PCs, steel, cement, automobiles etc. are the major example of oligopoly market. For instance, we can take a single industry to explain the oligopoly. Here we can take smartphone industry to represent an oligopoly market. Today we know only few names of producers of smartphones but large number of buyers become customers across the globe.

On the basis of the nature of product, we can classify oligopoly market in to two categories like pure oligopoly and differentiated oligopoly. Suppose all the smartphones are available as homogenous commodity, which means quality and all other attributes of the commodity are similar. Such type of oligopoly markets can be called as pure oligopoly.

But in reality, almost all industries are providing differentiated products, even though the commodities are substitutable one for another, there may be see some variations in the attributes of products. In our example, smartphones are used by us for same purpose, but the products are different from one to another either in its color or in quality etc. So, this type of market, supplying differentiated products, can be called as differentiated oligopoly.

Features of Oligopoly

There are many features for an oligopoly market. Here, some of the important features are listed given below.

1) Few sellers and large number of buyers

In an oligopolistic market, there should be few sellers. In our example smart phones are producing by few firms like Apple, Samsung, Blackberry etc. At the same time large number of customers are ready to purchase it.

2) Interdependence

interdependence refers to the nature of firms in their dependency of rivals in making market related decisions. Since, each firms are supplying substitutable commodity, all the firms would aware of the actions taken by the rival firms in the industry.

3) Advertising and selling costs

Today, advertisement become a strategic tool to improve the sales of every products. So, costs like advertisement and transportation etc. will incur for each firms. The advertisement is essential since firms are supplying sustitutable products with different attributes.

4) Group behavior / Monopoly behavior

All the firms are indirectly agreeing with the decision regarding price fixing. In our example prices of smart phones will be in a certain range. Suppose $ 200 to $ 300. prices of products may very from one firm to other, but it will be at a particular range. It depends on the technology used by the firm during the production of commodities.

5) Price rigidity

The price rigidity at a particular level is another feature of oligopoly market. Since each firm is supplying substitutable products, no one can change the price. Suppose, a firms increased its price, it will resulted in the loosing of customers and challenge the the survival of the firm. So, prices of products will be rigid at a degree or level.

6) Freedom to entry and exit

A new firm can enter in to the oligopoly industry, or an existing firm can withdrew from the industry. But in reality it is not easy for exit from or enter in to the industry because of the considerable influence of some restrictions. A new firm may challenge the necessity of huge investment, lack of trust and goodwill etc. On the other hand, it is difficult for an existing firm to withdrew from the industry, because they may suffer losses since they invested huge amount.

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