Sociology Index

OLIGOPOLY

Recognised interdependence is the hallmark of 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 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. Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. 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. The concentration ratio measures the market share of the largest firms. Oligopoly inter-dependence can also foster anti-competitive co-ordination.

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.

Examples of Oligopolies

In oligopoly settings, parallel price movements for example could arise simply through independent rational behavior.

The music entertainment industry is dominated by Universal Music Group, Sony, BMG, Warner and EMI Group.

Operating systems for smartphones and computers provide excellent examples of oligopolies. Apple iOS and Google Android dominate smartphone operating systems, while computer operating systems are overshadowed by Apple and Windows.

Automobile manufacturing another example of an oligopoly, with the leading auto manufacturers in the United States being Ford, GMC, and Chrysler.

National mass media and news outlets are a prime example of an oligopoly, with 90% of U.S. media outlets owned by six corporations: Walt Disney, Time Warner, CBS Corporation, Viacom, NBC Universal, and News Corporation (NWSA).

While there are smaller cell phone service providers, the providers that tend to dominate the industry are Verizon, Sprint, AT&T, and T-Mobile.

Monopoly vs. Oligopoly

A monopoly and an oligopoly are market structures that exist when there is imperfect competition in the market. A monopoly contains a single firm that produces goods with no close substitute, while an oligopoly contains a small number of relatively large firms that produce similar, but slightly different products.

In both  monopoly and oligopoly cases, there are significant barriers to entry for other enterprises. A company may be a monopoly in one region, but operate an oligopoly in a larger geographical area. The market's geographical size can determine which structure exists.

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).