Oligopoly, (Greek, 'few sellers') one of the imperfectly competitive market structure where a few large firms dominate the market. This is a basic definition of one of the market structures often called “Big business” market structure because the companies in this type of market structure are the top companies with lots of investments huge labor and big market value. These companies are also best known in the world because they usually compete in worldwide market and not a domestic market and spend a huge amount of their profit on advertising. There are two types of oligopoly
1.Impure oligopoly that has a differentiated product
2.Pure oligopoly that has a homogeneous product
Homogenous product means that product the company is producing is identical with any other same product that different company is producing. These products are usually not as many as differential products for example steel, gold, wheat and etc. are all homogenous products because there are very few differences among them.
While homogenous products are almost identical differential products are all the other products any company is producing and even when products are similar in many ways there still can be lots of differences between each product.
Another characteristic of oligopoly is that in this market structure there are few sellers that are in the market. This is mostly because they are using a huge amount of money to run their businesses and usually there are just three of four firms that dominate the market. The question is how many companies are few. The answer in oligopoly is that this market structure is consequence of mutual independence.
Mutual independence means that action of one firm will cause a reaction on the part of other firms are on the market. This means that oligopoly with its few powerful companies makes it easier for a big company to collude. This mutual interdependence basically mean that when one company of “big four“ will change their price the other three will make similar or same decision to keep their market or to have a chance of bigger portion of the market. They are doing this because each company can not afford losing their portion of the market. In other market structures this is impossible, due to luck of monopolistic rules where are lots of companies. Last basic characteristic of an oligopoly is that there is a difficult or almost impossible entry to market for new companies.
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An analysis of the strategic behavior of an Oligopoly
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