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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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 that require large-scale capital investments, which would benefit consumers with greater innovation and lower prices.

Last Updated by eNotes Editorial on November 7, 2019
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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.

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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.


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