Oligopoly - a market controlled by a few players

03 October 2025

Oligopoly is a market structure in which a small number of large firms control the majority of supply in a given industry. Unlike perfect competition, where many entities operate, in an oligopoly, each decision of one company affects the actions of others. This makes this market exceptionally strategic and unpredictable.

📌 Key features of oligopoly

1. Small number of firms

There are several dominant companies in the market - they have a significant market share and set price and quality standards. Their decisions affect each other.

2. Mutual interdependence

Companies must consider competition reactions. Example: if one company lowers the price of a product, others may follow suit to avoid losing customers.

3. High entry barriers

New companies find it difficult to enter the market due to barriers:

financial (e.g. high investment costs),
technological (e.g. complex production processes),
legal (e.g. regulations and licenses).

4. Products: homogeneous or differentiated

They can be homogeneous, like in the fuel industry (e.g. oil),
or differentiated, like in the automotive industry (different brands, models, styles).

5. Collusion risk

A small number of companies favor price collusion or market share agreements, limiting competition and may be detrimental to consumers.

🧪 Examples of oligopolistic markets

✈️ Airline market - a few major airlines control most of the transportation market.
🚗 Automotive industry - global giants dominate, such as Toyota, VW, GM.
📡 Telecommunications - in many countries, only 2-3 operators control access to networks and mobile services.

🧠 Why is oligopoly a challenge?

Companies must anticipate competitive moves.
Decisions are often the result of strategic calculations.
It can lead to price stability, but also to lower innovation if there is a lack of competitive pressure.

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