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OLIGOPOLY
An oligopoly is defined as a market dominated by a few producers: each of which has some control over the market. Examples of oligopolies include:
Confectioneries
· Petrol retailing
· Washing powder market
· banks
· Mobile Telecommunications
The concentration ratio is one measure of the extent to which a market or industry is dominated by a few leading firms. Normally an oligopoly exists when the top five firms in the market account more than 60% of total market demand/sales for. In the example below we look at the market share of mobile phone manufacturers
Features of an Oligopoly:
There is no single theory of how firms determine price and output under conditions of oligopoly, but the industry is likely to exhibit the following features:
interdependence: Firms have to take into account likely reactions of rivals to any change in price. This interdependence creates a lot of uncertainty as firms also have to take into account the behaviour of other firms. Sometimes this leads to competition but sometimes it leads to collusion and the firms mat behave as a monopoly.
Significant barriers to entry (including economies of scale)
Prices do not change often. Firms do not want to lower prices as they are afraid of price wars. They may find it difficult to raise prices as rivals may keep their prices constant and so take customers from them.
non-price competition: as firms are reluctant to compete on prices they compete by advertising and branding
watch this video. Why do you think prices are so high? Are the firms competing with each other?
Do Supermarkets in the UK use price competition?
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