oligopoly

Definition:
Oligopolistic markets exist when there are so few sellers of a particular product or service that the market activities of the seller have an important effect on the other sellers. Oligopolistic markets have many different structures; a small number of sellers is only one characteristic of an oligopolistic market. Other characteristics are homogeneity or differentiation of the product, the kind of CONCENTRATION in the industry, and the height of the BARRIERS TO ENTRY faced by new firms. In a pure or homogeneous oligopoly there is a small number of firms in the industry, and they sell a homogeneous product or service. All of them are compelled to ask the same price, since the purchase decision is predominantly influenced by price when homogeneous products are involved. Furthermore, because there are few sellers each seller must consider what effect his price will have on prices by competitors, and must expect retaliation if he reduces prices. In a differentiated oligopoly there is some real or imagined product differentiation. Hence, prices vary among firms in an oligopoly, and they vary in direct proportion to the differences in the degree of product differentiation among firms.

Cross-References:
[concentration] [barriers to entry]

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