Companies take into account their own production volumes, the expected reaction of competitors, and the price elasticity of demand. The main difference between an oligopoly and a free competition market is in the way decisions are made by individual participants who own a large market share. A recent study finds that drug prices and the profitability of domestic pharmaceutical firms have grown post-Covid. The cumulative wealth of pharma billionaires doubled after 2018, and 15 of India’s top 100 billionaires are from the sector. The study covered data from six pharma and diagnostics companies, and demonstrated a spike in overall profit and revenues between 2011 and 2021.
- In other words, the interdependence among the sellers of a commodity is high.
- So, in simple terms, an oligopoly is a market structure in which only a few firms dominate the entire industry with significant market power.
- Industries where smaller companies have been bought out or merged, or where large corporations dominate, tend to have oligopolies.
- Each of these factors has hit smaller companies to a larger extent, and market watchers feel such churns and disruptions are likely to continue to stir up further concentration in the economy.
- As of 2018, there were 58 airlines in the US, out of which 17 were classified as major carriers with more than $1 billion in annual revenue.
- Sony, Panasonic, and Sharp The three major Japanese electronics companies once dominated the global television market.
Their innovations into their sector also keep them unique, which helps them create an ecosystem that completely sustains their growth. In the current scenario, the number of these players is increasing. These are oligopoly examples in india prevalent and that too within the wide cross-section of industries.
Example #1 – Technology Industry
These firms sell homogeneous as well as differentiated products in the market. As in an oligopoly market, the decision of one firm influences the process and working of another firm. A small change in a small firm has a direct impact on its rivals. Some of the most notable oligopolies in the U.S. are in film and television production, recorded music, wireless carriers, and airlines. Since the 1980s, it has become more common for industries to be dominated by two or three firms.
Pure oligopoly
It is characterized by the domination of several large companies while entering the market is difficult for newcomers. “…is a market structure with a small number of firms, none of which can keep the others from having significant influence” (p. 271). High barriers to entry, such as influential brand names, economies of scale, and high capital costs often characterize oligopolies.
Collusive oligopoly
A few corporations have substantial control over the production and destruction of agricultural chemicals. These are chemicals required for improving crop yields (fertilizers), protecting crops (pesticides and herbicides), and enhancing soil health. However, AT&T is currently the biggest American telecommunication company in terms of revenue. In 2019, it produced a total revenue of over $181.19 billion, which is nearly $50 billion higher than the revenue generated by the runner-up, Verizon. According to the National Funeral Directors Association, a funeral costs $7,323 on average.
Staff need to be paid and flights need maintenance during the times of low demand which can be a heavy expense. The airline industry has high costs such as labor and raw materials. Pilots and other airline staff need to be highly qualified and hence, highly paid. Additionally, the price of jet fuel has increased 380% since April of 2020. The cost of compliance to government regulations are high as well. Safety is very important in the airline industry and there are strict regulations in place.
However, oligopoly can also lead to innovation and lower prices through competition among the dominant firms. The interdependence in the decision-making of the few firms that make the industry is the most important characteristic of an oligopolistic market. This is important because, when the competitors are few, if a firm makes a small change in price, output, etc., it can have a direct impact on its rivals.
