What Are Advantages Of Oligopoly?


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Nathaniel Hobby Profile
Nathaniel Hobby answered
There can be both advantages and disadvantages to having an oligopoly business market.
  • What is an oligopoly?
An oligopoly is a business market that is controlled by only a small group of firms. As opposed to a monopoly (only one firm) or a duopoly (two firms) an oligopoly is defined by having three or more businesses involved. It could be described as a market with only a small amount of competition. The oligopoly relates to sellers within the market, not buyers, so the sales market would only be controlled by a small number of businesses. This usually means that a decision or financial step made by one company will directly affect the other companies in the market. A good example of an oligopoly would be the US wireless market. This market is almost solely shared between four providers (T-mobile, AT&T, Verizon Wireless and Sprint Nextel).
  • What are the advantages of an oligopoly?
The first and most obvious advantage of an oligopoly is the ability to fix prices. With a small number of companies selling products in the market, it is not uncommon to find that the companies have discussed or proposed a cost for products, so fixing the price, and therefore profits, for all the companies. Another advantage is that it is very difficult for new businesses to attempt to enter the market, as this usually means that the smaller company will be bullied out by the bigger companies who are in the driving seat of the market and are able to dictate the market more than the smaller company.
The term 'perfect knowledge' is also used with oligopolies. This is the idea that, because of the control that few firms have on the market, each firm has a perfect knowledge of the market and the product, making the market more stable.
Anonymous Profile
Anonymous answered
1) Firms are able to reap economies of scale, due to large scale competition.
-Products cannot be produced by individual firms on a small scale.

2) There is an incentive to engage in Research & Development.
-They have the ability to earn super normal profits and capture larger market share.

3) Firms enjoy lower costs due to technological improvement.
-This results in higher profits which will improve firm's capacity to withstand price war.

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