Description: Oligopoly is a market structure characterized by the dominance of a small number of firms that control most of the supply of a product or service. In this type of market, the decisions of one firm directly affect the others, leading to strategic interdependence. Often, firms in an oligopoly may collaborate tacitly or explicitly to set prices, limit production, or divide the market, which can result in reduced competition and, consequently, higher prices for consumers. The main characteristics of oligopoly include the existence of entry barriers that hinder the arrival of new competitors, product differentiation, and the possibility of collusion among firms. This type of market is relevant in various industries, from technology to energy, and can have a significant impact on the economy, innovation, and consumer welfare.
History: The term ‘oligopoly’ became popular in the 20th century, although similar market structures have existed long before. In the late 19th and early 20th centuries, industrialization led to the concentration of firms in sectors like steel and railroads, where a few companies dominated the market. Economic theory began to study these structures in depth, highlighting the interdependence between firms and the impact on competition and prices. In 1933, economist Edward Chamberlin introduced the concept of ‘monopolistic competition,’ which relates to oligopoly by describing markets where a few firms have market power. Since then, the study of oligopoly has been fundamental in economics, especially in antitrust regulation.
Uses: Oligopoly is used to analyze and understand the behavior of firms in markets where competition is limited. Economists and regulators employ this concept to assess the health of a market and determine whether business practices are fair or anti-competitive. Additionally, oligopoly is relevant in the formulation of economic policies and in the regulation of key industries such as telecommunications, energy, and transportation, where the concentration of power can affect consumers and the economy as a whole.
Examples: Examples of oligopolies include the telecommunications industry, where a few companies like AT&T, Verizon, and T-Mobile dominate the market in the United States. Another case is the automotive industry, where manufacturers like Ford, General Motors, and Toyota control a large portion of the global market. In the energy sector, companies like ExxonMobil and Chevron are examples of oligopolies that influence oil and gas prices worldwide.
