What is an Oligopoly?

Essay by samyslk230University, Bachelor'sA-, December 2006

download word file, 5 pages 3.0

Downloaded 159 times

Many people ask the question what is an Oligopoly. An oligopoly can be defined as an industry in which few firms controls the entire market. In an oligopoly, there is a small number of firms that dominate the market. The controlling firm usually set aspirations for other to follow, making it harder for firms to enter the market. The term to best describe the market structure such as an oligopoly is interactivity. This is so because the decisions of one firm influence, and are influenced by, the decisions of other firms. When firms make a decision they must factor in the effect it will have on other firms. Because firms decisions affect other firms in the indutry, collusions are more likey to occur compared to other forms of market structures.

To further analyze an oligopoly interdependence, think of a market such as an automobile industry. In which you have four or five firms controlling majority of the market.

When management foucses on pricing stragetgies, one has to factor in the effects it will have on the other car companies. If management charges a lower price than other firms, will the firms keep their prices or also lower them? In the end the decision is based on how the manager strategizes and how all the other firms will respond.

In an oligopoly there are four major settings based under the assumption of how rivals in a market will respond prices or production changes. "Each of the four models has different implications for the manager's optimal decisions, and these differences arise because of difference in the way rivals respond to the firms' actions."

Sweezy Oligopoly is one of the four types of oligopolies withih the

United States. It is named after Paul Sweezy a Marxist economist. This model is "based on a...