Oligopolistic markets are characterised by a small number of suppliers. They can be found in all countries and in a wide range of industries. Some oligopoly markets are highly competitive, while others are significantly less so, or appear to be. Competition authorities are frequently asked to look into allegations of coordinated actions or a lack of vigorous competition.
Detecting the root cause of sub-competitive performance in oligopolies, on the other hand, can be difficult, and the manner in which it occurs (e.g., whether through an explicit agreement among firms to restrain competition, or something less) can have a significant impact on the analysis and available tools/remedies under competition law. This may result in enforcement gaps in which welfare-reducing behaviour is not addressed. But how serious is this in practice, and is there anything we can do about it?
Because of the structure of oligopolies, it is typically difficult, if not impossible, for new firms to enter oligopolistic markets. It is primarily due to two significant factors: fierce competition from well-established and successful large firms that dominate the space, as well as their competitive and diverse product and service offerings, which include premium and mass market offerings.
Breaking into an oligopoly is difficult for new companies with similar offerings. Only firms with significant funding are typically able to do so; an oligopolistic market requires a large amount of capital to operate in because the inherent economies of scale built by oligopolies generally ensure that they have a production cost advantage.
Oligopolies emerge when several dominant companies rule over a specific market or industry, allowing for collaboration and partnerships among the firms that exist within them. While an oligopolistic setup can be extremely beneficial for companies already in the market, it can also be extremely difficult to break into for new companies without substantial funds.
Oligopoly is an intriguing market structure because of the interaction and interdependence of oligopolistic firms. What one company does affects the other companies in the oligopoly.
The interaction between firms is so complex that there are multiple models of oligopoly. It depends on whether the product is homogeneous or differentiated, whether a dominant firm exists, whether firms compete on output or price, and so on.
Firms in an oligopoly may attempt to form a cartel by agreeing to fix prices, divide the market among themselves, or restrict competition in other ways. The primary feature of the Cartel Model is collusion among oligopolistic firms to fix prices or limit competition in order to earn monopoly profits.
1. Oligopolistic Market Behaviour.
2. The Cournot Model to Understand the Equilibrium: The Cournot equilibrium is the output level at which each oligopolistic firm maximises its profit given the output level of all other firms. No firm can benefit from shifting its output level away from Cournot equilibrium because the reaction of other firms will wipe out any extra profit.
3. The Stackelberg Model: A Stackelberg oligopoly is one in which one firm leads and the others follow. This model applies when (a) firms sell similar products, (b) competition is based on output, and (c) firms choose their output sequentially rather than simultaneously.
4. The Bertrand Model (Can a Pricing strategy be designed in case of Homogeneous Goods)
5. The Differentiated Pricing Model (Competitive and collusive Equilibrium)
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