The oligopoly is a market form in which there are many buyers but few suppliers. An oligopoly with exactly two suppliers is called a duopoly or dyopoly, while a market where there are also few suppliers and few buyers is called a bilateral oligopoly.
Price rigidity (sticky prices): when several competitors are equally strong or weak, no one dares to change their behaviour because they fear that the competition will thwart their strategy.
Definition of sticky prices
A particular characteristic of an oligopoly is the reaction link between the price or quantity setting of the various suppliers. This is not the case with an atomistic market structure (Polypol). Since there are only a few suppliers, everyone has a certain degree of market power and can influence market developments through their price or volume decisions. Consequently, the demand for a supplier’s good depends on the behaviour of its competitors, i.e. there is a strategic interdependence between suppliers. Occasionally, oligopolies in particular can lead to very intense competition and thus to prosperity. If a supplier lowers the price, competitors will quickly adjust their prices accordingly in order not to lose customers.
Price rigidity: This form of behaviour on the part of suppliers is also possible. In the case of price rigidity, none of the competitors dares to change their price behaviour. As a result, prices generally remain almost constant.
Some more forms of oligopolies
Definition: supply oligopoly
In the supply oligopoly, a large number of consumers face a limited choice of consumer goods (and suppliers). In this market form, there are very few suppliers in an industry that share the market. These have correspondingly high market power.
Example:
Five large oil companies share the fuel market in Germany. The number of consumers on the other hand is very large: millions of motorists who need gasoline and diesel every day.
Definition: Demand oligopoly
When, within an industry, a small number of demanders face a large number of suppliers, there is a demand oligopoly in that market. This is faced by a large number of suppliers.
Example:
Assuming there are 30 holiday pensions in a tourist area. On the other hand, there are only two travel companies that offer these accommodations in their programmes.
Definition: Two-sided oligopoly
In microeconomics, there is still the market form of the bilateral or bilateral oligopoly. Here there are both few demanders and few suppliers on the market.
Example:
The market for special machines is a bilateral oligopoly. There are few manufacturers and the demand for special machines is also low.
Recent Comments