In oligopoly there are a small number of firms in the market. As per the norms, oligopoly consists of 3 -5 dominant firms. The firms can compete with each other or collaborate to earn more profits. Here the buyers are more than the sellers.
Features
- Existence of few sellers: the primary features of oligopoly is the existence of a few sellers who dominate the entire industry and influence the prices of each other. Also there are large number of buyers under oligopoly.
- Identical or differentiated products: An important characteristic of oligopoly is the production of identical products or differentiated products.
- Barriers in entry: Another important characteristic of oligopolistic competition is that organizations cannot easily enter the market; nor can they make an exit from the market.
- Enhanced role of government: Under oligopolistic market structure, the government has a greater role as it acts as a guard since it is observed that oligopolists may engage in the illegal practice of collusion, where they together make production and pricing decisions.
Oligopolists may start acting as a single organization and further increase prices and profits. Thus the government is required to keep a watch on such activities to curb the illegal practices.
- Mutual interdependence: Under oligopoly market structure, a few numbers of sellers compete with each other. Thus mutual interdependence refers to the influence that organizations create on each other’s decisions, such as pricing and output decisions.
- Existence of price rigidity: Under oligopolistic markets, organizations do not prefer to change the prices of their products as this can adversely affect the profits of the organization.