An oligopoly is a market structure in which there are few sellers and these few sellers have large market share.
- These firms may produce identical products (homogeneous) or differentiated products, and competition is limited because the number of sellers is small.
Features of Oligopoly
1. ) Few Large Firms
- A small number of firms control the majority of the market share.
- Examples: Automobile industry (Toyota, Ford), smartphone market (Apple, Samsung).
2.) Interdependence Among Firms
- The decisions of one firm (e.g., pricing, production) significantly impact others.
- Firms often observe and react to competitors’ strategies.
3.) Barriers to Entry
- High barriers to entry prevent new competitors from easily entering the market.
- Barriers include large capital requirements, economies of scale, and brand loyalty.
4.) Homogeneous or Differentiated Products
- Products may be identical, such as in steel or cement industries.
- Alternatively, they may be differentiated, such as in the car or smartphone industries.
5.) Price Rigidity
- Firms often avoid changing prices frequently because price wars can harm all players.
- Prices tend to be stable, except under coordinated decisions or external shocks.
6.) Non-Price Competition
- Firms compete through advertising, product features, quality, and customer service instead of lowering prices.
- Example: Smartphone brands offering unique features.
