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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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Lynnette Wofford eNotes educator| Certified Educator

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While a "monopoly" is a market dominated by a single firm, an "oligopoly" is a market dominated by a small number of large firms. The main characteristic of an oligopoly is that it reduces competition.

The strongest negative of this is that companies in an oligopoly have less incentive to reduce prices or improve services due to the lack of competitive pressure. One major concern is that oligopolies can provide opportunities for collusion or price-fixing, in which companies keep prices artificially high. Oligopolies can also create barriers to the entry of new and innovative firms by temporarily lowering prices in concert to bankrupt a new market entrant and then raising them again.

In the United States, the cell phone and airline industries are examples of oligopolies. In both cases, prices are significantly higher than they are for similar services in Europe, where there are more competitive markets.

In theory, oligopolies may allow for economies of scale and development of innovations...

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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.