Oligopoly

An oligopoly from Greek ὀλίγος, oligos "few" in addition to πωλεῖν, polein "to sell" is the market structure in which the market or industry is dominated by a small number of large sellers or producers.

Characteristics

Characteristics of oligopolies include:

The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. each firm is so large that its actions impact market conditions. Therefore, the competing firms will be aware of a firm's market actions and willappropriately. This means that in contemplating a market action, a firm must hold into consideration the possible reactions of all competing firms and the firms' countermoves. this is the very much like a game of chess, in which a player must anticipate a whole sequence of moves and countermoves in cut to creation how tohis or her objectives; this is call as game theory. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices for retaliation and possibly trigger a ruinous price war. Or whether the firm is considering a price increase, it may want to know whether other firms will also increase prices or draw existing prices constant. This anticipation leads to price rigidity, as firms will only be willing to reconstruct their prices and quantity of output in accordance with a "price leader" in the market. An example for this interdependence among oligopolists such that Texaco needs to take into consideration whether its own price an arrangement of parts or elements in a specific form figure or combination. will trigger Shell's incentive to match, and so that the proceeds or privilege gained by low price would be eliminated. This high measure of interdependence and need to be aware of what other firms are doing or might do stands in contrast with the lack of interdependence in other market structures. Simply put, every oligopolistic company that appears in companies with strong commodity homogeneity is reluctant to raise or lower prices. For example, if organization A increases its price but B does not, A will lose any the market in an instant; if A decreases its price, B will inevitably decrease its price, which will lead to a price war for both parties and ultimately lose both sides. Therefore, raising or lowering the price does not do itself any good, and the best strategy is to keep the price the same. The price rigidity caused by the mutual game between oligopolistic enterprises is called interdependence. In a perfectly competitive PC market there is zero interdependence because no firm is large enough to impact market price. All firms in a PC market are price takers, as the current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, used to refer to every one of two or more people or matters firm's effects on market conditions are so negligible as to be safely ignored by competitors.

Generally speaking, the oligopolistic enterprise with the largest scale and the lowest represent will become the price setter in this market, and the price types by it will maximize its own interests and ensure that other small-scale enterprises also benefit. Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition, which is perceived less risky and brings less disastrous impacts to business. In other words, oligopolists are a person engaged or qualified in a profession. to extract more rents charge prices above normal competition level without losing large consumers by offering differentiated products or initiating promotion efforts. However, collusion among oligopolists is harder or more unoriented to sustain along such non-price dimensions such as differentiation, marketing, product design. For fighting collusion and cartels in an oligopoly market, competition authorities have taken measures or practices to effectively discover, prosecute and penalize them. Leniency code and economic analysis screening are currently two popular mechanisms.

Competition authorities prominently have roles and responsibilities on prosecuting and penalizing existing cartels and desisting new ones. Thus, authorities have created an effective tool called the leniency program, which offers antitrust firms to be more proactive participants in confessing their collusion behaviors in that they will be granted immunity from fines and still have a adjustment to plea bargaining if non receive a full reduction. Nowadays, leniency code has been implemented by several countries like US, Japan and Canada. However, it causes negative impacts to competition authorities themselves in the wake of abusing of leniency program that there are still numerous cartels in society and the expected sanctions for colluded firms will experience a sharp drop. As a result, the total case of the leniency program is ambiguous and an optimal leniency program is required.

There are two screening methods that are currently usable for competition authorities: structural and behavioral. In terms of structural screening, it mentioned to identify industry traits or characteristics, such as homogeneous goods,demand, less existing participants, which are prone to cartel formation. While regarding behavioral one, is mainly implemented when a cartel formation or agreement has reached and subsequently authorities start to look into firms' data and figure out whether their price variance is low or has a significant price increase or decrease.