Oligopoly: Types and Characteristics - GeeksforGeeks (2023)

In Laiensprache aMarketis a place where the exchange of goods takes place. In other words, a place where the buying and selling of goods takes place is a market. The market is the nervous system of modern economic life, where producers and consumers conduct the buying and selling transactions. The market has a different and broader meaning in economics because it does not refer to a specific location. InBusiness,A market is a region where buyers and sellers do not have to congregate in a specific place for the sale and purchase of goods. Instead, they must be in contact with each other through all means of communication such as the Internet, letter, post, telephone, etc.

Market refers to the entire region where buyers and sellers of a commodity come into contact with each other to influence the buying and selling of the commodity.

The number and types of companies operating in the industry and the nature and degree of competition in the market for goods and services are referred to asmarket structure.In order to study and analyze the nature of different market forms and problems they face when buying and selling goods and services, economists have classified the market in different ways. The different forms of market structure are perfect competition and imperfect competition (monopoly, monopolistic competition and oligopoly).


The term oligopoly is derived from "oligi" (little) and "polein" (sell). A market situation in which the number of major sellers of a commodity is fewer and the number of buyers is greater is referred to asoligopoly market.The sellers in the oligopoly market sell differentiated or homogeneous products. Because the number of sellers in this market is fewer, one seller's price and production decision affects the price and production decision of other sellers in the market. In other words, the interdependence between the sellers of a commodity is high.For example,Luxury car manufacturers like BMW, Audi, Ford, etc. fall under the oligopoly market because the number of luxury car sellers is smaller and the number of buyers is larger. Sometimes there are only a few sellers in the oligopoly market, and each seller is influenced by and influences other sellers, which is also called “competition among the few”.

Types of oligopolies

1. Pure or perfect oligopoly:When the firms in an oligopoly market produce homogeneous products, it is said to be a pure or perfect oligopoly. Although there are rarely oligopoly companies with homogeneous products, industries like steel, cement, aluminum etc. fall under pure oligopoly.

2. Imperfect or differentiated oligopoly:When the firms in an oligopoly market produce differentiated products, it is called an imperfect or differentiated oligopoly.For example,Talcum powders are manufactured by different companies and have different properties, yet all talcum powders are close substitutes for one another.

3. Kollusives Oligopol:Collusive oligopoly, also known ascooperative oligopoly,is a market in which different firms work together to determine production or price or both price and production of products.

4. Non-Collusive Oligopoly:When firms compete with each other in an oligopoly market, it is called a non-collusive oligopoly.

What is duopoly?

A special case of oligopoly where there are two sellers and it is also assumed that both firms sell homogeneous products and there is no substitute for the product.For example,Pepsi and Coca-Cola are two companies that sell soft drinks that are homogeneous in nature and have no substitute.

Features of the oligopoly

1. Few companies:There are few companies in an oligopoly market, the number of which is not well defined. But each of the companies in this market produces a significant part of the total production. Each of the firms in the oligopoly market competes fiercely with each other, trying to manipulate the price and volume of their products in order to outsmart each other. In addition, the number of companies in the market is so small that the action of one company influences the competing companies. Therefore, each company keeps an eye on the actions/activities of other competing companies.For example,The automotive industry in India falls under the oligopoly market.

2. Non-price competition:The firms in an oligopoly market can influence the price of the product; However, they try to avoid such an influence, as it can trigger a price war, which neither firm wants. In other words, if a company tries to lower the price of its product, the other companies must also lower the price and vice versa, which can cause the company to lose its customers who ultimately want the price to increase. Therefore, these companies follow the policy of price rigidity and therefore prefer non-price competition. So, to compete with each other, the companies use methods other than pricing, such as B. Customer Service, Advertising, etc.

price rigidityis a situation where the price of the product tends to remain the same or fixed regardless of changes in supply and demand for those products.

3. Interdependenz:The firms in an oligopoly market are interdependent, meaning that the actions of one firm affect the actions of other firms. Each company in this market considers the actions and reactions of its competitors before deciding the price and production level of its products. A change in one firm's price or output changes the response of other firms operating in the same market.For example,If Maruti changes the price of its cars, its rival companies like Tata, Hyundai, etc. will also have to make corresponding changes in their activities.

4. Entry barriers for companies:Because of the entry barriers for new firms in this market, there are few firms in the oligopoly. The new firms are prevented from entering the oligopoly market due to high capital requirements, patent requirements and many other factors. Therefore, new companies that can overcome these barriers enter the market, which leads to abnormal profits in the long run.

5. Role of Distribution Expense:Selling expenses are the costs spent on advertising, promoting and marketing the product. Since the companies are highly competitive and interdependent, they take advantage of selling costs to sell their product in the market. Therefore, companies in the oligopoly market focus more on their advertising and other promotional techniques. The role of selling expenses in selling products is more than their role in a monopolistic, competitive market.

6. Art of Products:Firms in the oligopoly market can produce differentiated or homogeneous products. The companies that produce homogeneous products are called pure oligopolies. The companies that produce heterogeneous products are called imperfect oligopolies.

7. Group behavior:Firms in the oligopoly market are completely interdependent; Therefore, any change in one firm's price and output affects the other competing firms. Therefore, to avoid price wars, these companies prefer to set the price of their product through a group decision so that all these companies can benefit.

Group behavior here means that the companies in this market behave as one company while maintaining their interdependence on an individual basis.

8. Mean Demand Curve:A producer's pattern of behavior in an oligopoly market cannot be determined with certainty. Therefore, the firms' demand curve in an oligopoly market is mediocre or uncertain. Because the firms in this market are interdependent, an action by one firm greatly influences the actions of other competing firms. Therefore, the demand curve of an oligopoly market is constantly changing or shifting and is not unique.

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