Introduction Oligopoly is a market structure characterized by a small number of large firms that dominate the market, selling either

identical or differentiated products, with significant barriers to entry into the industry. This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition. Oligopoly dominates the modern economic landscape, accounting for about half of all output produced in the economy. Oligopolistic industries are as diverse as they are widespread, ranging from breakfast cereal to cars, from computers to aircraft, from television broadcasting to pharmaceuticals, from petroleum to detergent.

Characteristics

Small Number of Large Firms: An oligopolistic industry is dominated by a small number of large firms, each of which is relatively large compared to the overall size of the market. This generates substantial market control, the extent of market control depending on the number and size of the firms.

Identical or Differentiated Products: Some oligopolistic industries produce identical products, while others produce differentiated products. Identical product oligopolies tend to process raw materials or intermediate goods that are used as inputs by other industries. Notable examples are petroleum, steel, and aluminum. Differentiated product oligopolies tend to focus on consumer goods that satisfy the wide variety of consumer wants and needs. A few examples of differentiated oligopolistic industries include automobiles, household detergents, and computers.

Barriers to Entry: Firms in an oligopolistic industry attain and retain market control through barriers to entry. The most common barriers to entry include patents, resource ownership, government franchises, start-up cost, brand name recognition, and decreasing average cost. Each of these makes it extremely difficult, if not impossible, for potential firms to enter an industry.

Example of Oligopoly Company Royal Dutch Shell, commonly known as Shell, is a global petrol company. There are a few competitors in this petrol company such as BP, Exxon, Mobil, etc. Businesses compete with each other by offering the best price and the best service or product. The business that does the best job gets the most customers. The product is homogenous on its supply of petrol fuel to cars. They are differentiated in advertising, sales locations and services of their product in the market. In this industry, high startup costs and established brand names can create substantial barriers to entry, especially since the fortunes of a new product are so uncertain. Besides, huge advertising cost for product differentiation expenditures is needed to provide valuable information to consumers and offering them a wide variety of products.