The Extent Of Oligopoly Essay Research Paper

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The Extent Of Oligopoly Essay, Research Paper Oligopoly Oligopoly is a market structure dominated by a small number Of large firms, selling either identical or differentiated products, and there are significant barriers to entry into the industry. This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition. Oligopoly being a general market structure category, dominates the modern economic landscape. About half of the output produced in the world s economy can be traced to oligopolistic industries. Oligopolistic industries are as diverse as they are widespread. Oligopoly ranges from breakfast cereal to cars, from computers to aircrafts, from television broadcasting to pharmaceuticals, from petroleum to detergent.

Because each firm in an oligopolistic industry is relatively large, each has a substantial degree of market control. It’s not total control like in a situation of monopoly, but it’s significantly greater than that of a monopolistically competitive firm. While monopolistic competition and oligopoly have distinct identifiable characteristics, they really form a continuum on the spectrum of market structures. Any boundary separating oligopoly from monopolistic competition is fuzzy at beast. An industry that’s monopolistically competitive in a large city, for example, might be oligopolistic in a smaller town. A key feature of oligopoly is interdependence among firms in an industry. The actions of one firm depend on the actions of another. In both perfect competition and

monopolistic competition the actions of one firm have no affect on other firms. Each firm is so small relative to the overall market, that firms are independent. And of course monopoly is the only firm in an industry, so interdependence is not a relevant issue. Oligopolistic interdependence creates a number of interesting economic issues. One is the tendency for competing oligopolistic firms to turn into cooperating oligopolistic firms. When they do, inefficiency worsens, and they tend to come under the scrutiny of government antitrust laws. Alternatively, oligopolistic firms tend to be a prime source of innovations, innovations that promote technological advances and economic growth. Oligopoly exists when there are a small number of firms selling in a single market. The usual

reason for this situation is that the optimal size of firm, the size at which average cost is minimized, is so large that there is only room for a few such firms. The situation differs from perfect competition because each firm is large enough to have a significant effect on the market price. It differs from monopoly because there is more Than one firm. It differs from monopolistic competition because the firms are few enough and their products similar enough that each must take account of the behavior of all the others. The number of firms may be fixed, or it may be free to vary. So far as their customers are concerned, oligopolies have no more need to worry about strategic behavior than do monopolies. The problem is with their competitors. All of the firms will be better off if

they keep their output down and their prices up. But each individual firm is then better off increasing its output in order to take advantage of the high price. One can imagine at least three different outcomes. The firms might get together and form a cartel, coordinating their behavior as if they were a single monopoly. They might behave independently, each trying to maximize its own profit while somehow taking account of the effect of what it does on what the other firms do. Finally, and perhaps least plausibly, the firms might decide to ignore their ability to affect price, perhaps on the theory that in the long run any price above average cost would pull in competitors, and behave as if they were in a competitive market. Internet business fads come and go with remarkable