An oligopoly is a form of market where only a small group of companies or suppliers control all of the market. This is different than a monopoly, which is where only one company or business control the entire market. There are many different industries that are ruled by oligopolies, some of the most common are the health care industry, the media industry, and the cellular phone service industry. The suppliers are generally very large, and have set standards among each other in order to keep competition and prices under control. There are certainly some benefits of a oligopoly market structure, but many drawbacks as well.
The Advantages of an Oligopoly
1. High Profits
Since there is such little competition, the companies that are involved in the market have the potential to bring a large amount of profits. The services and goods that are controlled through oligopolies are generally highly needed or wanted by the large majority of the population.
2. Simple Choices
Having only a few companies that offer the goods or service that you are looking for makes it easy to compare between them and choose the best option for you. In other markets it can be difficult to thoroughly look at all of the competitors to compare pricing and services offered.
3. Competitive Prices
Being able to easily compare prices forces these companies to keep their prices in competition with the other companies involved in the market. This is a great benefit for the consumers because prices continually go lower as other companies lower there prices.
4. Better Information and Goods
Right along with price competition, product competition plays a huge part in a the oligopoly market structure. Each company scrambles to come out with latest and greatest thing in order to sway consumers to go with their company over a different one. This also goes with the advertising and amount of information and support that they provide their customers.
The Disadvantages of Oligopoly
1. Difficult To Forge A Spot
For small business and other people with creative ideas in a oligopoly market, the outlook for their business is grim. Extremely large and advanced companies completely control the market, making it nearly impossible for small or new businesses to break into the market place.
2. Less Choices
In many cases having to choose a company in an oligopoly is like choosing the lesser evil. The consumers have very limited choices and options for the services that they want. This is one of the biggest pitfalls of a oligopoly.
3. Fixed Prices Are Bad For Consumers
While competitive prices come into play, they are rarely very far apart from any other company that they could go with. This is because the businesses and corporations that are part of the market agree to fix prices. Meaning there is a set limit for just how low prices can go, forcing consumers to pay high prices no matter what.
4. No Fear Of Competition
Often times the companies that are in the oligopoly market become very settled with their business. The profits and the way they run are guaranteed to work, so they no longer feel the need to come up with creative or innovate new ideas.
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