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Oligopoly: Definition, Characteristics & Examples

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  • 0:00 What Is an Oligopoly?
  • 0:53 Characteristics
  • 2:03 Examples
  • 3:27 Lesson Summary
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Lesson Transcript
Instructor: Rana Abourizk

Rana has a Masters Degree in Business Administration and is pursuing a Doctorial Degree. She has been teaching online for over a year. She has a strong business background.

One of the most interesting market structures we will talk about today is called an oligopoly. We will go over the definition, characteristics, and some interesting examples.

What Is an Oligopoly?

One day in economics class, Sam's friend Vanessa asks him, 'What's the difference between an oligopoly and monopoly?' Sam tells Vanessa that it's clear that an oligopoly has some room for other firms to enter the market, and a few control it. But, it's also hard for new firms to enter because of things like laws and costs to begin their business, but they can still do it. And in a monopoly, only one firm controls the industry and entering the market is highly challenging if not impossible.

An oligopoly occurs when only a few firms control the market. These firms may have a high portion of control divided between each other. So, let's think about this. If there are few firms that dominate an industry, then these firms will make a continuous profit over the years. They can work together to stand strong.

Characteristics

Let's look at some of the common characteristics of an oligopoly.

In an oligopoly, there are only a few firms in the market. Each firm has a portion of the market share. Firms watch each other's strategies carefully and try to emulate what the more successful ones are doing. This will probably sound familiar to you because it happens all the time. Let's say Apple makes a really successful new laptop. Microsoft will then look at what Apple did differently from them and try to emulate it as close as possible, while still maintaining their core identity.

Other characteristics include being able to manage prices and strategies. The strategies are focused on the value the business can bring, the service it can provide, and the image it can give itself. For instance, two airlines begin a promotion to maintain their customer satisfaction, perhaps by allowing clients to carry two pieces of luggage instead of just one.

Lastly, in an oligopoly barriers to entry are high. This is because of things like costs to start the business, patenting or copy-writing products, and the government giving the company the right to do business. In a monopoly, the barriers to enter the market are much higher than in an oligopoly.

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