What is the meaning of Oligopoly and types of Oligopoly with examples
Oligopoly is that kind of market structure where a market is dominated by few sellers selling homogeneous or differentiated products.
What are homogeneous products?
Homogeneous products are those that cannot be distinguished from the products sold by other sellers.
Homogeneous products are similar in quality but differ on other attributes such as style, price of the product or brand image.
To a buyer, the products appear similar and cannot make out a difference between a product on display except their price or brand image and therefore as a buyer, you make your selection of the almost identical products based on their price or brand image. For example: While buying a bag of strawberries you aren’t aware who grew them and you probably don’t care but you make your selection of the vendor who sells them at the best quality and the cheapest price as compared to the other vendor.
How does Oligopoly differ from Monopoly and Duopoly?
A monopoly market is ruled by one firm whereas, a duopoly market is ruled by two firms and an Oligopoly market there is no particular upper limit to the number of firms, however, the number must be low enough where the actions of one firm influence the other.
An Oligopoly market structure is one where competition exists among a few sellers and where the behaviour of every seller influences and impacts the other seller and the other seller too is influenced.
Examples of An Oligopoly structure:
The steel, aluminium or cement market are the best examples of an Oligopoly market in India.
Other examples of Oligopoly can be fixed broadband services or Fuel retailing.
For instance, in the UK, Fixed broadband services are dominated by four main suppliers-
- BT, that has a market share of nearly 32%,
- Sky, with a market share at 22%,
- Virgin Media at 20%, and
- TalkTalk at about 14%. Source: OFCOM.
Likewise, fuel retailing in India is dominated by state refiners such as –
Indian Oil Corp IOC, Hindustan Petroleum Corp, Bharat Petroleum Corp.
What are the types of Oligopoly?
Pure or Perfect Oligopoly:
When the firms produce homogeneous products, then exists a pure or perfect oligopoly.
Steel, cement or aluminium industries could be examples of it.
2. Imperfect or Differentiated Oligopoly:
When the firms produce differentiated products, then it is termed as a differentiated or imperfect oligopoly.
3. Collusive Oligopoly:
When the firms are in cooperation with each in setting up prices or output of the products, it is known as a collusive oligopoly.
4. Non-collusive Oligopoly:
When the firms in an oligopoly market are in competition with each other, it is termed as a Non-collusive oligopoly market.