An Oligopoly is a market structure where only a few sellers dominate the market.
Oligopoly Examples & Explanation:
Because there are only a few firms (players) in an Oligopoly, they tend to be highly interdependent of one another – meaning they will take in account each others’ actions when trying to compete in the market. Another characteristic is these markets also exhibit high barriers to entry, such that new firms cannot easily enter into the market. This characteristic is shared with Monopolies (one firm dominating) and Duopolies (two-firms dominating), explaining how they can dominate the market with large amounts of market share. If we consider the oil & gas industry, they tend to be an Oligopoly in most countries (think Shell, BP, Exxon) due to the huge capital investment required for oil exploration/mining, making it difficult for new producers to enter into the market. When a large oil/gas producer sells their oil at a lower price to increase their sales volume, other producers are likely to lower their prices as well to protect their share of the market. As a result, Oligopolies tend to keep market prices stable and focus on non-price competition, so that firms can avoid a price war. However, the negative oil prices from the coronavirus pandemic is also caused by other factors, including a lack of storage capacity for oil producers forcing them to sell, and a global lack of demand for oil during the crisis. In general, oil producers in OPEC agree on an amount of output to maintain a relatively high price for oil, meaning higher profits for the industry.
Oligopoly Economics Notes with Diagrams
Want a closer look? Download these Oligopoly notes.
The left video explains oligopoly and the kinked-demand curve, the right looks at competition and cartels in the oligopoly market structure.
Oligopoly Multiple Choice Questions (A-Level)
Want a closer look? Download these Oligopoly Multiple Choice Questions.
Oligopoly Essay Questions (IB)
Want a closer look? Download these Oligopoly essay questions.
Oligopoly in the News
Related A-Level, IB Economics Resources
EconPlusDal YouTube Channel
– Game Theory