Advantages and Disadvantages of Oligopoly
Advantages and Disadvantages of Oligopoly
When the market is dominated by a few suppliers, it is termed as oligopoly. It can be observed in the television industry of the United States, where the market is governed by a handful of market players. The advantages and disadvantages of this market form can be clearly demarcated.
Oligopoly market form exists in the television and media industry, health care insurance industry, and cellular phone service industry of the United Sates. This is because each of these industries has a handful of suppliers which share the market. For example, around 89% market of the cellular phone service industry is governed by four service providers namely, T-Mobile, Nextel, Verizon Wireless and AT&T. Rest 11% is shared between other small-sized service providers. Before getting into the advantages and disadvantages, let us first understand what an oligopolistic market means.
Oligopoly market structure involves few suppliers or firms which are relatively large in size as compared to other firms in the industry, thereby developing substantial market control. Due to this market control, these firms have the ability to influence the entire market. Dominating market players are able to create barriers of entry for new entrants, thereby making it difficult for them to get into the business. Even though the dominating players are quite a few in an oligopolistic market, they do not have the freedom to make their own decisions. A firm needs to take into consideration the reaction of other major players in the market. Suppose, if a firm decides to reduce its product's price to increase its market share, it is quite possible that other major players will also reduce their price, thereby hampering the strategy of the previous firm. Therefore, firms are interdependent on each other. Decisions made by one firm are affected by the response of other players. A firm's success lies in its hands as well as its competitors.
Advantages of Oligopoly
Large
When the market is dominated by a few suppliers, it is termed as oligopoly. It can be observed in the television industry of the United States, where the market is governed by a handful of market players. The advantages and disadvantages of this market form can be clearly demarcated.
Oligopoly market form exists in the television and media industry, health care insurance industry, and cellular phone service industry of the United Sates. This is because each of these industries has a handful of suppliers which share the market. For example, around 89% market of the cellular phone service industry is governed by four service providers namely, T-Mobile, Nextel, Verizon Wireless and AT&T. Rest 11% is shared between other small-sized service providers. Before getting into the advantages and disadvantages, let us first understand what an oligopolistic market means.
Oligopoly market structure involves few suppliers or firms which are relatively large in size as compared to other firms in the industry, thereby developing substantial market control. Due to this market control, these firms have the ability to influence the entire market. Dominating market players are able to create barriers of entry for new entrants, thereby making it difficult for them to get into the business. Even though the dominating players are quite a few in an oligopolistic market, they do not have the freedom to make their own decisions. A firm needs to take into consideration the reaction of other major players in the market. Suppose, if a firm decides to reduce its product's price to increase its market share, it is quite possible that other major players will also reduce their price, thereby hampering the strategy of the previous firm. Therefore, firms are interdependent on each other. Decisions made by one firm are affected by the response of other players. A firm's success lies in its hands as well as its competitors.
Advantages of Oligopoly
Large