Sociology Index

OLIGOPOLY

Oligopoly is the situation where a small number of companies own or control the production of a particular good or provision of services within a market economy. Oligopoly typically arises from the concentration of ownership and provides a challenge to liberal theory which claims benefit from a plurality of producers operating in a very competitive market. Oligopoly is a market structure with a small number of sellers and each seller is required to take into account rivals’ current actions and likely future responses to rivals' actions. Recognised interdependence is the hallmark of oligopoly. In oligopoly settings, parallel price movements for example could arise simply through independent rational behavior. In the automobile industry Ford, Chrysler and GMC are examples of oligopoly. In the telecom industry Sprint, Verizon and AT&T are examples of oligopoly. 

The US antitrust laws combat anticompetitive oligopoly behavior in three ways. The Sherman Act prohibits horizontal agreements among competitors that restrain trade unreasonably. Section 7 of the Clayton Act prevents mergers or acquisitions whose effect may be to create or strengthen oligopoly structures in markets that are conducive to coordination. These laws provide a unified approach to dealing with the oligopoly problem. If a dominant oligopoly already exists, the merger between two of its members or between an oligopolist and an outsider will lead to the oligopoly becoming even tighter. The tighter the oligopoly is, the more transparent competitive conduct will become and the easier it will be for conscious parallelism to occur. Oligopoly inter-dependence can also foster anti-competitive co-ordination.

Books On Oligopoly

BAKER, Jonathan B. (1993) Two Sherman Act section 1 dilemmas: parallel pricing, the oligopoly problem, and contemporary economic theory, The Antitrust Bulletin, Vol. 38, No. 1 (Spring), pp. 143-219.

MONTI, Giorgio (1996) Oligopoly: Conspiracy? Joint monopoly? Or Enforceable Competition? World Competition, Vol. 19, No. 3 (March), pp. 59-102.

STIGLER, George J. (1964) A Theory of Oligopoly, Journal of Political Economy, Vol. 72. Reprinted as Chapter 5 in The Organization of Industry (Homewood, Ill.: Richard D. Irwin, 1968), pp. 39-63.

Posner, R.A. (1969) Oligopoly and the Antitrust Laws: A Suggested Approach, 21 Stanford Law Review 1562.

Stigler, G.J. (1964) A Theory of Oligopoly, Journal of Political Economy.

Baker, J.B. (1993) Two Sherman Act Section 1 Dilemmas: Parallel Pricing, the Oligopoly Problem, and Contemporary Economic Theory 38 Antitrust Bulletin 143.

Yao, D.A. and S.S. DeSanti (1993) Game Theory and the Legal Analysis of Tacit Collusion, 38 Antitrust Bulletin 113.

Posner, R.A. (1976) Price Fixing and the Oligopoly Problem, in his Antitrust Law: An Economic Perspective (Chicago, University of Chicago Press).

Shapiro, C. (1989) Theories of Oligopoly Behavior in Handbook of Industrial Organization, Vol. 1, eds. R. Schmalensee and R. Willig (Amsterdam, North-Holland). Economic Approaches to Identifying Collusion.

Shughart, W.F. (1997) Oligopoly and Collusive Behavior and Coordinating Oligopolistic Activity in his The Organization of Industry (Houston, Dame).

Carlton, D.W. and J.M. Perloff (1994) Cartels: Oligopoly Joint Decision Making in their Modern Industrial Organization (New York, Harper Collins).