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market situation in which a small number of selling firms control the market supply of a particular good or service and are therefore able to control the market price. An oligopoly can be perfect-where all firms produce an identical good or service (cement)-or imperfect-where each firm's product has a different identity but is essentially similar to the others (cigarettes). Because each firm in an oligopoly knows its share of the total market for the product or service it produces, and because any change in price or change in market share by one firm is reflected in the sales of the others, there tends to be a high degree of interdependence among firms; each firm must make its price and output decisions with regard to the responses of the other firms in the oligopoly, so that oligopoly prices, once established, are rigid. This encourages nonprice competition, through advertising, packaging, and service-a generally nonproductive form of resource allocation. Two examples of oligopoly in the United States are airlines serving the same routes and tobacco companies.See also oligopsony
marketing situation in which there are only a few competitors (usually large companies) for customers in a particular industry and where each of the competitors is sensitive to the others' marketing strategies, particularly in the area of product price. The automobile industry in the United States is an oligopoly because only six firms (General Motors, Ford, Chrysler, Honda, Toyota, and Nissan) account for almost 90% of U.S. automobile sales.See also monopoly , monopsony
Copyright c 2000, 1994, 1987 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.