The dominant players in a market tend to collude as if they were a single monopoly, and they often try to fix prices, output volumes, and other business terms. Alternatively, oligopolists may focus on non-price competition. They may compete on customer service, packaging, or special delivery options, instead of prices, as these strategies avoid a price war. Here are some ways to identify if your company is in an oligopoly.
Price rigidity
Oligopoly is a market where price is rigid. The firms competing in the oligopoly can influence the price of a product but do not engage in price competition. Instead, they use other forms of competition like advertising, sales promotion, and product improvements. Price rigidity in an oligopoly limits the flexibility of firms to set a price, which leads to lower prices and fewer customers.
Collaborative behavior
As the name suggests, oligopolies are a form of market structure in which firms have little or no incentive to compete. This type of market structure has several key characteristics, and one of those characteristics is the fact that oligopolistic firms can set their own prices much higher than competitors. In addition, the lack of competition in an oligopoly leads to higher profit margins than in a more competitive market. Some examples of oligopolies are steel manufacturers, oil companies, railroads, and pharmaceuticals.
Lack of innovation
Oligopoly is a problem for many industries. Examples of oligopolies include the wireless carrier industry, oil production, airline industry, and the automobile industry. Although these examples are common, oligopoly can develop in any industry. It is caused by too few players who control a large percentage of the market, which can lead to high prices for consumers. But it doesn't have to be that way.
High entry costs
An oligopoly is a market with many suppliers, but only one firm that can capture all the market share. This is because the suppliers have an incentive to cheat by setting their prices high and restricting supplies. This gives them the ability to capture substantial amounts of business from other firms. Oligopolies are also difficult to break, and competitors can increase output and innovate to gain market share. However, an oligopoly is not an inherently bad market.
Government support
Government support for oligopoly is a key factor in the current state of the infrastructure market. Governments support these companies so they can take the lead in the marketplace. This has several advantages, including better access to market information and the ability to compete aggressively in an increasingly competitive environment. In addition, government support for oligopoly can improve the economic situation of the country. Furthermore, such support can promote national welfare.
