Oligopoly

An oligopoly is a market structure characterized by a small number of firms, each large enough to have market power and significantly influence the price and output levels of the industry. These firms often compete with each other, sometimes fiercely, but are also aware of their interdependence. Their actions and decisions are highly interconnected, as one firm's strategy directly impacts the others. Entry into an oligopolistic market is often restricted due to high startup costs, regulatory hurdles, or the established market presence of existing firms. The resulting lack of intense competition allows the firms to maintain higher prices than in a more competitive market. The core of an oligopoly lies in its strategic interactions; decisions are made by taking into account expected behaviors of other firms.

Oligopoly meaning with examples

• The airline industry often functions as an oligopoly. When one airline announces a price drop on a particular route, competitors are quick to respond with similar discounts, making it difficult for any single airline to capture significant market share through pricing alone. This interdependence creates a situation where firms are constantly monitoring each other’s actions and adjusting their own strategies accordingly. High barriers to entry and existing market power create this structure.
• The mobile phone industry is another example. Apple and Samsung hold a dominant position globally, with a handful of other players vying for smaller shares. The introduction of a new phone model, such as the foldable phone, from either one of the major companies is keenly watched, and the others quickly attempt to release a competitor product or offer similar features in their existing models. This constant interplay of action and reaction defines this market.
• The soft drink industry is primarily controlled by a few large multinational corporations such as Coca-Cola and PepsiCo. These firms have substantial resources, expansive distribution networks, and strong brand recognition, making it challenging for new entrants to effectively compete. Their marketing strategies often clash and their pricing structures can have an influence on the others which can be a very costly endeavour.
• In the automotive sector, a few major manufacturers like Toyota, Ford, and General Motors control a significant portion of the global market. Each company’s product development, pricing strategy, and marketing campaigns are closely scrutinized by the others. Any shift by one company triggers an industry-wide response, illustrating the strategic interdependence inherent in oligopolistic market structures. The limited number of key players allows each one to have a substantial impact on the overall market trends and outcomes.