OLIGOPOLY RP Pamplona OLIGOPOLY Etymology Oligo meaning small number; few Monopoly OLIGOPOLY An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. ©Wikipedia OLIGOPOLY Number of Sellers “Few” – a “handful” of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms. OLIGOPOLY Nature of Product Differentiation Homogenous (steel/aluminum) Differentiated (automobiles) OLIGOPOLY Ability to Enter and Exit the Industry Barriers to entry are high such as government licenses, economies of scale, access to expensive and complex technology, and strategic actions. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. OLIGOPOLY Degree of Control on Product Price Oligopolies are price setters rather than price takers. OLIGOPOLY Promotions (Non-price competition) Oligopolies tend to compete on terms other than price. Loyalty schemes Advertisements Product Differentiation OLIGOPOLY Cartel (collusion) an agreement between competing firms to control prices or exclude entry of a new competitor in the market. It is a formal organization of sellers or buyers that agree to fix selling prices, purchase prices, or reduce production using a variety of tactics. It usually arises in oligopolistic industry, where the number of sellers is small and the products being traded are usually commodities. The aim of such collusion is to increase individual members’ profits by reducing competition. OLIGOPOLY Public cartel Government is involved to enforce the cartel agreement, and the government’s sovereignty shields such cartel from legal actions. Work to pass on benefits to the populace as a whole. Private cartel Private cartels are subject to legal liability under the antitrust laws. Purpose is to benefit only those individuals who constitute it. OLIGOPOLY Price Leadership There may be an acknowledged market leader which informally sets prices to which other producers respond. Interdependence Oligopolies are typically composed of large firms that the actions of one firm affect market conditions. Each firm must be intelligent enough to guess what will be the possible responses and countermoves of their competitors. OLIGOPOLY Examples Worlwide Kraft Foods, PepsiCo, and Nestlé – top three leading food processing companies OLIGOPOLY Nestlé, The Hershey Company, and Mars, Incorporated – make most of the confectionery made worldwide OLIGOPOLY Microsoft, Sony, and Nintendo – dominate the video game console market

1. OLIGOPOLY
RP Pamplona

2. OLIGOPOLY
 Etymology
 Oligo meaning small number; few
 Monopoly

3. OLIGOPOLY
 An oligopoly is a market form in which a
market or industry is dominated by a small
number of sellers (oligopolists). Oligopolies
can result from various forms of collusion
which reduce competition and lead to higher
prices for consumers. ©Wikipedia

4. OLIGOPOLY
 Number of Sellers
 “Few” – a “handful” of sellers.
 There are so few firms that the actions of one firm
can influence the actions of the other firms.

5. OLIGOPOLY
 Nature of Product Differentiation
 Homogenous (steel/aluminum)
 Differentiated (automobiles)

6. OLIGOPOLY
 Ability to Enter and Exit the Industry
 Barriers to entry are high such as government
licenses, economies of scale, access to
expensive and complex technology, and strategic
actions.
 Additional sources of barriers to entry often result
from government regulation favoring existing
firms making it difficult for new firms to enter the
market.

7. OLIGOPOLY
 Degree of Control on Product Price
 Oligopolies are price setters rather than price
takers.

8. OLIGOPOLY
 Promotions (Non-price competition)
 Oligopolies tend to compete on terms other than price.
 Loyalty schemes
 Advertisements
 Product Differentiation

9. OLIGOPOLY
 Cartel (collusion)
 an agreement between competing firms to control
prices or exclude entry of a new competitor in the
market. It is a formal organization of sellers or
buyers that agree to fix selling prices, purchase
prices, or reduce production using a variety of
tactics.
 It usually arises in oligopolistic industry, where the
number of sellers is small and the products being
traded are usually commodities.
 The aim of such collusion is to increase individual
members’ profits by reducing competition.

10. OLIGOPOLY
 Government is
involved to enforce
the cartel agreement,
and the
government’s
sovereignty shields
such cartel from legal
actions.
 Work to pass on
benefits to the
populace as a whole.
 Private cartels are
subject to legal
liability under the
antitrust laws.
 Purpose is to benefit
only those individuals
who constitute it.
Public cartel Private cartel

11. OLIGOPOLY
 Price Leadership
 There may be an acknowledged market leader
which informally sets prices to which other
producers respond.
 Interdependence
 Oligopolies are typically composed of large firms
that the actions of one firm affect market
conditions.
 Each firm must be intelligent enough to guess
what will be the possible responses and
countermoves of their competitors.

12. OLIGOPOLY
 Examples
 Worlwide
 Kraft Foods, PepsiCo, and Nestlé – top three leading
food processing companies

13. OLIGOPOLY
 Nestlé, The Hershey Company, and Mars,
Incorporated – make most of the confectionery made
worldwide

14. OLIGOPOLY
 Microsoft, Sony, and Nintendo – dominate the video game
console market

15. OLIGOPOLY