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Introduction
One of the most important forms of imperfect competition is Oligopoly. The term is a combination of two Greek words, i.e., Oligi, which means few and Polein, means to sell. This form of marketing occurs when there are few sellers (more than two) in the market and selling same types of products. It rests between monopolistic competition and monopoly (Askar, El-Wakeel & Alrodaini, 2018).
It is also referred as the competition among the few. Under this market condition, one seller can influence the price-output policy of the product. The reason behind this is that there are few numbers of sellers or producers, and each firm controls a huge portion of the total supply. When products of the few sellers are differentiated, but the sellers are close substitutes for each other, then oligopoly will dominate in that situation.
Some example of Oligopoly:
Markets for smartphones, automobiles, and electronics are few examples of oligopoly market. In all these market, there are only a few sellers for a particular product. One of the special characteristics of oligopoly is DUOPOLY. It is a state of market dominance by two companies. Two firms sell a homogenous product, and you will not get any substitute for those products.
Airbus and Boeing control are some of the examples where two companies control a big portion of a market. There comes some soft drink market which is controlled by Coca-Cola and Pepsi. Then there are some examples of commercial aircraft market.
Oligopoly market types:
Based on the characteristics of oligopoly, it can be divided into following types:
Perfect oligopoly:
It will be said to be a perfect oligopoly condition when two company offer homogenous products (Vives 2001). Well, such condition is very rare, but steel, aluminum, and chemical producing company can be treated as pure oligopoly industries (Onofri & Boatto, 2015).
Differentiated oligopoly:
It happens when the firms produce different products but are the close substitute for each other. The industries that can come under this condition are cigarettes manufacturing company, soft drinks production industries, and car manufacturing industry. Every company’s product will have their characteristics.
Conniving and non-conniving oligopoly:
It is also known as the cooperative oligopoly. Here the firms together decide the price of the product. On the other side when there is a stiff competition among the firms, that situation called the non-conniving oligopoly.
Characteristics of Oligopoly:
The Oligopoly characteristics are very special, and those are not there in market structure. However, followings are some main characteristics of the oligopoly.
Automobile market as Oligopoly
After looking at the characteristics of oligopoly, where there are few companies in the market which offer homogenous products and dominating the majority of the market share, that situation is called as an oligopoly. The automobile market can be treated as the oligopoly market condition.
The automobile market justifies one important oligopoly characteristics, i.e., few automobile manufacturers are there who is now controlling the market. If compared with current automobile market scenario, it will be quite difficult for a new company to enter this market. Well-known automobile industries, like Ford, BMW, Volvo, and Mercedes-Benz have been achieved good economic scale across the world.
Barriers to entering the automobile market During the case study, it is found that as oligopoly market condition is there in the automobile market, it will be quite difficult to enter for a new car manufacturer who can compete with the brand like BMD and Mercedes-Benz. One of the characteristics of oligopoly states that a new company will need a huge amount of capital, raw materials, and exclusive patents to start its business under oligopoly market environment(Vives 2001). A new company will able to survive in the market if the company provides that quality of vehicles like Mercedes-Benz. For this, they need strong capital. This factor can diversely affect them. Apart from that, the former companies will not let the new companies enter the market easily. Another major factor is the reputation and image of the new company. For a reputable and well-known company, it will not difficult to enter the oligopoly market because they carry that much of brand reputation(Mazzeo 2002). But, for a new market, they may not have the brand reputation. So, the above-detailed discussion has given a clear idea on the characteristics of oligopoly and how oligopoly market can affect the new industry. References Bauer, P.T., 2013. West African trade: A study of competition, oligopoly and monopoly in a changing economy. Cambridge University Press. Rao, T.R., 2015. Strategic Behavior of Firms in Differentiated Oligopoly.International Journal of Applied Behavioral Economics (IJABE), 4(3), pp.51-62. Vives, X., 2001. Oligopoly pricing: old ideas and new tools. MIT press.
Askar, S.S., El-Wakeel, M.F. and Alrodaini, M.A., 2018.Exploration of Complex Dynamics for Cournot Oligopoly Game with Differentiated Products.Complexity, 2018.
Mazzeo, M.J., 2002. Product choice and oligopoly market structure. RAND Journal of Economics, pp.221-242.
Onofri, L. and Boatto, V., 2015.Cournot Oligopoly, Homogeneous Products and Grappa Market: An Econometric Study (No. 01/2015). EERI Research Paper Series.
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