How to Briefly Explain What an Oligopoly Is in Economics

An oligopoly is a type of non-competitive market formation in which a small group of corporations, companies or firms holds a significant majority of control over a particular market or industry. Oligopolies have a tendency to encourage collusion among the firms in power to control prices and drive out smaller competitors. One advantage of this kind of form is that it can help stabilize a chaotic market. But in a mature market, it's not at all dissimilar to a monopoly.

Instructions

    • 1

      Discuss the etymological origin of the term. In Greek, "oligoi" means "a few" and "polein" means "to sell." The term refers to a small group of firms or corporations that overwhelmingly dominate a particular industry.

    • 2

      Outline the relation of oligopoly to a term your audience might be familiar with, such as monopoly. The major difference is that an oligopoly is domination of a market by at least two companies. Make clear that there is a difference between an oligopoly that colludes openly to control an industry, as OPEC does, and one that does not, such as the four major mobile phone carrier companies.

    • 3

      Give real-world examples of oligopolies, such as Coca-Cola and Pepsi in the soft-drink market, or the U.S. auto industry. Part of the reason these industries become so concentrated in a few companies is because of prohibitively expensive operating costs.

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