Tamil Nadu Board of Secondary EducationHSC Commerce Class 11

Imperfect Competition - Oligopoly

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Notes

Oligopoly :
The term oligopoly is derived from the Greek words ‘Oligo’ which means few and ‘poly’ which means sellers. It is that market where there are a few firms (sellers) in the market producing either a  homogeneous product or a differentiated product. For example, mobile service providers, cement companies etc.
Features of oligopoly : 
1) Few firms or sellers :
Under oligopoly market, there are few firms or sellers. These few firms dominate the market and enjoy a considerable control over the price of a product.
2) Interdependence :
The seller has to be cautious with respect to any action taken by the competing firms. Since there are few sellers in the market, if any firm makes the change in the price, all other firms in the industry also try to follow the same to remain in the competition.
3) Advertising :
Advertising is a powerful instrument in the hands of oligopolist. A firm under oligopoly can start an aggressive and attractive advertising campaign with the intention of capturing a large part of market.
4) Entry barriers :
The firm can easily exit from the industry whenever it wants. But has to face certain entry barriers such as Government licence, patents etc.
5) Lack of uniformity :
There is a lack of uniformity among the firms in terms of their size. Some firms may be small while others may be of bigger size.
6) Uncertainty :
There is a considerable element of uncertainty in this type of market due to different behaviour patterns. Rivals may join hands and co-operate or may try to fight each other.

Examples of Oligopoly:

  • Music industry - Four music companies control virtually all of the market. They are Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI Group
  • Social media - The major Social media outlets(Facebook, Twitter and Instagram) function as an oligopoly.
  • Search engines - Only a few major companies (Google and Bing) dominate the market for search engines. These same companies dominate search-based internet advertising.
  • Sreakfast cereal manufacturers - Almost all commercially available breakfast cereal is manufactured by Kellogg, General Mills, Post and Quaker.
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