4.1.5.5 Oligopoly
Oligopoly is a market structure with a small number of firms, none of which can keep the others
from having significant influence. The concentration ratio measures the market share of the largest
firms. Features of an oligopoly are:
• The market is dominated by a few large sellers!
• High barriers to entry/exit: so, it’s hard for new firms to enter the market.
• Differentiated goods: all goods must be similar but slightly different.
• Interdependence: one firm’s actions will directly affect another firm.
An oligopoly is either collusive or non-collusive. In a collusive oligopoly, firms collude to set the
same prices whereas firms in a non-collusive oligopoly compete to undercut each other on prices.
Collusion between firms is illegal but firms are still allowed to cooperate and work together.
Collusion - when two or more firms agree to limit competition. There are two types of collusion:
1) Overt/formal collusion is when there is a formal agreement between firms to collude. This
formal agreement will typically be kept hidden, because the CMA fines companies who are
found overtly colluding.
There are instances where overt collusion can be made public
○ Pablo Escobar - cocaine cartel
○ OPEC oil cartel - group of countries, not firms, so can get away with this
Oligopoly is a market structure with a small number of firms, none of which can keep the others
from having significant influence. The concentration ratio measures the market share of the largest
firms. Features of an oligopoly are:
• The market is dominated by a few large sellers!
• High barriers to entry/exit: so, it’s hard for new firms to enter the market.
• Differentiated goods: all goods must be similar but slightly different.
• Interdependence: one firm’s actions will directly affect another firm.
An oligopoly is either collusive or non-collusive. In a collusive oligopoly, firms collude to set the
same prices whereas firms in a non-collusive oligopoly compete to undercut each other on prices.
Collusion between firms is illegal but firms are still allowed to cooperate and work together.
Collusion - when two or more firms agree to limit competition. There are two types of collusion:
1) Overt/formal collusion is when there is a formal agreement between firms to collude. This
formal agreement will typically be kept hidden, because the CMA fines companies who are
found overtly colluding.
There are instances where overt collusion can be made public
○ Pablo Escobar - cocaine cartel
○ OPEC oil cartel - group of countries, not firms, so can get away with this
