What is an oligopoly?

An oligopoly (from Greek ὀλίγος, oligos "few" and πωλεῖν, polein "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result from the desire to maximize profits, which can lead to collusion between companies. This reduces competition, increases prices for consumers, and lowers wages for employees.

Many industries have been cited as oligopolistic, including civil aviation, electricity providers, the telecommunications sector, Rail freight markets, food processing, funeral services, sugar refining, beer making, pulp and paper making, and automobile manufacturing.

Most countries have laws outlawing anti-competitive behavior. EU competition law prohibits anti-competitive practices such as price-fixing and manipulating market supply and trade among competitors. In the US, the United States Department of Justice Antitrust Division and the Federal Trade Commission are tasked with stopping collusion. However, corporations can evade legal consequences through tacit collusion, as collusion can only be proven through actual and direct communication between companies.

It is possible for oligopolies to develop without collusion and in the presence of fierce competition among market participants. This is a situation similar to perfect competition,[2] where oligopolists have their own market structure.[3] In this situation, each company in the oligopoly has a large share in the industry and plays a pivotal, unique role.[4] With post-socialist economies, oligopolies may be particularly pronounced. For example in Armenia, where business elites enjoy oligopoly, 19% of the whole economy is monopolized (BEEPS 2009 database), making it the most monopolized country in the region. [5]

Oligopoly is a market structure that is along the spectrum of competition ranging from monopoly to perfect competition. Oligopoly is a market structure that has few sellers or producers. Oligopoly is similar to monopoly except there are multiple sellers instead of just one single dominate producer.