In what ways can customers gain and lose from the behaviour of firms in an oligopoly?In what ways can customers gain and lose from the behaviour of firms in an oligopoly?

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pohnpei397 eNotes educator| Certified Educator

Economically speaking, an oligopoly occurs when a market is dominated by a few large firms.  These firms each have enough market share that all firms in the market can be affected by each others' pricing decisions.

The impact on a consumer depends on whether the firms in the market compete or whether they collude and form a cartel.  A cartel is only possible in an oligopoly.  Since there are so few firms, they can conceivably agree on prices that will give them a high level of profit (rather than competing fiercely).  If they do so, the consumer is harmed.

If firms in oligopoly compete, then consumers get the benefit of lower prices and improved quality of products.  This is true, in part, because of the size of the firms in oligopoly.  Large firms that are actually in competition are most likely to engage in innovation (think of the innovation in automobiles, for example) and are also most likely to enjoy economies of scale.

When firms in oligopolies actually compete, this market structure is quite beneficial.  When they do not, it is similar to a monopoly in that it causes higher prices and lower quantities produced for consumers to buy.

M.P. Ossa eNotes educator| Certified Educator

You may get additional responses, but gathering from the fact that Oligopoly allows for a variety of suppliers to service one corporation, the first benefit for the consumer is variety. We cannot obtain neccesarily a good deal from oligopolist markets because it is a sellers' market in which the limited number of various suppliers compete against each other for the customer's business not through lowering their prices, but through pushing their product.

Another possible advantage would be that, if these limited suppliers end up in some sort of fracas and no end is in sight, then they might bend their knees and start considering consumer benefits through lowering the prices of their products. In these rare cases, a consumer might find himself pondering between two perfectly quality products and not knowing why they are both on sale.

Yet, in the end, oligopoly is for the seller's ultimate benefit.


giorgiana1976 | Student

Because in an oligopoly, each manufacturer or seller knows very well  the percentage of that product or service on market and that any change in price or volume of production by an oligopolistic firms is reflected in the sales volume of other, there is a tendency for the degree of interdependence between firms, which is very high, so that each firm must set prices and production volumes by considering the reaction of the other firms in oligopolistic, so that once established, pricing in an oligopoly is rigid. This could be a disadvantage for a poor market so that oligopoly is a form more characteristic of developed countries.

Usually, oligopolistic are steel production markets , the automobile, machinery and equipment for energetics and chemical industry,  because complexity of machinery and technology does not allow the emergence of more small firms.