oligopoly

Economy-And-Finanzas

2022

We explain what an oligopoly is in economics, its types, characteristics and examples. Also, differences with a monopoly.

In an oligopoly, such as that of oil, small producers cannot compete.

What is an oligopoly?

An oligopoly (composed of the Greek voices oligos, "Few", and polein, “Sell”) is the economic situation in which a market is strongly influenced by a small group of producers or sellers, without any one completely dominating over the others, but without allowing free competition from other small or medium producers .

The latter is due to the fact that, in oligopolies, trade rules are managed in favor of the most powerful actors, making it difficult to incorporate new competitors, but at the same time preventing any of the powerful from taking full control of the market. , which would lead to a monopoly.

These types of conditions have their own market logic, which usually lead to a reduction in the offer and higher prices, in the event of collusion or participation in the market, for example. However, their economic results can be very diverse: it is possible that in situations of frank competitivenessWith low prices and high levels of production, an oligopoly closely approximates free or perfect competition.

There are no economic theories to describe the behavior of oligopolies, but rather a set of Models situational, based on real life, that allow making possible projections regarding its results. For this, Game Theory is often useful.

Characteristics of oligopolies

Oligopolies are broadly characterized by the following:

  • They are market forms in which few Business (generally a maximum of four) compete for the market, influencing the conditions of incorporation into it in their favor.
  • In oligopolistic situations, it is the producers who set prices, rather than being the ones who take them. Furthermore, in those situations their Profits they are normally maximized.
  • In the long term, oligopolies can promote significant growth of influential companies, which can be to the detriment of the public consumer (high prices) or to your benefit (low prices). Everything will depend on the schemes competitiveness that they set, which can be based on the price, the advertising, to consumer loyalty, etc.
  • Its distinguishing feature is the interdependence between oligopolistic firms, as their actions inevitably affect the market and each other, so that they are all very aware of every step they take. That turns the oligopoly into a chess board, where to every move by one company there is a response from some other.

Types of oligopoly

An oligopoly of demand occurs when there are too few buyers for a product.

The following forms of oligopoly are generally distinguished:

  • Bilateral oligopoly. In this type of situation there are not only few bidders for the market, but also a small audience for which they must compete, that is, few companies and few consumers.
  • Oligopoly of demand. Also called oligopsony, it consists of the inverted version of oligopoly: there are many suppliers and few demanders, so that it is the consumers who exert the influence on the market.
  • Duopoly. These are oligopolies of only two competing companies, so it constitutes an intermediate step between the oligopoly and the monopoly.

Examples of oligopoly

4 companies control 97% of the US mobile phone market.

Some examples of oligopoly are as follows:

  • The US cell phone market. Dominated by four large corporations of telecommunications: Verizon Wireless, AT&T, Sprint and T-mobile, which control 97% of the market.
  • The sale of oil from OPEC countries. That is, the Organization of Exporting Countries of Petroleum, operates under oligopolistic or cartel rules, since these 14 nations account for 43% of world production and 81% of the world's oil reserves.
  • The large fuel distributors in Spain. Like Repsol, Campsa, Petronor and a few transnational companies, they handle the bulk of the market and make it difficult for competing companies to emerge.
  • The few airlines that still fly to Venezuela. Since their economic debacle at the beginning of the 21st century, they have managed the entire aeronautical market to and from this Caribbean country, although they do so under unusual economic conditions. These companies are Avianca, Avior, Copa, Iberia, LATAM, Air France, Turkish Airlines and Wingo.

Oligopoly and monopoly

Unlike the oligopoly, in which there is a margin - fair or not - for commercial competition, the case of the monopoly is much more drastic, since a single company is the one that no longer exerts an influence, but a total control over the market. market.

Thus, the company does not have the obligation to compete with anyone really, but can settle comfortably knowing that consumers have no choice but to buy from it, since there is no one who offers the same on the same terms, or who can enter to a market already totally taken over by it.

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