Oligopoly: definition and characteristics

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In economics or geography, the part that is dedicated to the study of markets is of utmost importance. More exactly for geography, what is interesting to know is how it, through the influence of different agents, influences society. In this lesson from a TEACHER we will talk about what is the relationship between an oligopoly and the market.

And it is that an oligopoly is a market structure constituted by a small group of relevant competitors. In order to make a correct definition, in the first section we are going to look at the definition and the different types of market structures. After this situation, we will focus on the topic itself the definition and characteristics ofoligopoly.

Index

1. Market structure: definition and types
2. Market types of imperfect competition
3. What is an oligopoly: easy definition
4. 6 main characteristics of the oligopoly

Before starting with the definition and characteristics of an oligopoly, it is important to know what the markets are like. Analysis of the market structure is of great importance for microeconomics. In this section we are going to analyze how the market behaves depending on the dimensions and the number of buyers or sellers. To do this, first we are going to make a general definition of the structure of the state, and then analyze the main types within it.

What is the market structure

The market structure it is the form of organization of the same. Within these, a series of buyers and sellers (called economics agents) who, through their interactions with the market, regulate the prices of a product or a set of products.

One of the main features of the markets is that they are not homogeneous and therefore they tend to behave in different ways: each market has a series of priorities that must be addressed in order to reach its main objective, which is none other than making the most of economic benefit.

When making our definition of the market structure, an element to take into account is the number of companies that operate in it and therefore offer similar services. The interaction of these factors is what allows the different market structures to function. In this sense, we distinguish between two types of markets: perfectly competitive markets and imperfectly competitive markets.

The types of markets

• Of perfect competition: In perfectly competitive markets there are a large number of markets in which no one can influence the determination of the price. In other words, competition is established on equal terms.
• Imperfectly competitive markets: In imperfectly competitive markets there are many companies for the same market and each one sells an identical product. Therefore, in these types of markets, companies do influence the price of the services or products offered. Within the imperfectly competitive markets, we find two types of markets that are representative of said competition: monopoly and oligopoly, although within them there are also large variations. Another of the most prominent examples of imperfectly competitive markets are: monopsony and oligopsony, duopoly and monopolistic competition.

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Now that we have already known that there are two different types of market, we are also going to talk about the different types of markets that are encompassed within imperfect competition. They are as follows:

Monopoly

Monopoly is a kind of imperfectly competitive market structure where there is a single seller and many buyers. In this case, since there is only one brand that offers a specific product or service, customers should limit themselves to those options. An example of a monopoly we have with Microsoft Y Google.

Monopsony and Oligopsony

On the one hand, monopsony is a type of imperfectly competitive market where there is a sole buyer and in consequence the plaintiff is the one who influences the price of the product. On the other hand, in oligopsony it is found in a type of market where the applicants are a number reduced but still have a direct influence on the price, resulting in very high quantities. irregular.

The duopoly

Type of imperfectly competitive market in which all the offer focuses on two brands. These brands, in turn, have to compete to attract more customers through the regulation of prices and offers.

Monopolistic competition

Also called competitive market. It is a type of imperfectly competitive market in which there is a small number of dependent companies, and that each one has an important part of the market share. The competition will not be mainly for prices but depends on other factors such as quality, location, etc.

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At this point on the agenda, we may already be saturated with so many economic concepts. For this reason, we are going to try to make a oligopoly summary, with an understandable definition, concise characteristics and finally by the main types.

The word oligopoly derives from the Greek: oligo which means '' few '' and polios which means '' seller ''. Following the scheme of the previous section, the oligopoly is a type of imperfectly competitive market considered as a intermediate point between two ends: perfect competition and monopolies.

To be more exact, the oligopoly corresponds when more than 40% of the sector is dominated by companies belonging to the same conglomerate. It is mainly characterized by having few companies that will determine that the profits of an oligopoly company are dependent on the actions of its competitors. The market is therefore divided among a select and reduced group of products.

Different types of oligopoly

• Differentiated oligopoly: The products offered by the different companies differ in certain aspects. Includes a wide variety of manufactured products.
• Concentrated oligopoly: it occurs when there are few producers of a raw material. Consequently, producers have control over the price of the product. Industrial concentration is achieved in this type of market.
• Competitive oligopoly: It is characterized by the high concentration in its production.

1. Among the participants of the oligopoly, the dumping, that is, lower prices below the price of production in order to make a profit.
2. All members of the sector have the ability to know the actions of your competitors.
3. Oligopoly market firms have a wide range of patterns behavior making it difficult to create a single model.
4. The profits of an oligopoly company are dependent on the actions of its competitors.
5. Oligopolistic firms possess dThe types of results: homogeneous (raw materials) and lyou differentiated (processed products).
6. Competition does not exist as they have a absolute control over the market.

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