Oligopoly facts for kids

An oligopoly is a special kind of market where only a few big companies control most of the business. Imagine a small group of friends who decide everything together – that's a bit like an oligopoly. These companies often make it very hard for new businesses to join the market or get a big share of it.

Because there are only a few main players, each company watches what the others do very closely. They think about how their rivals will react before making their own choices, like setting prices or launching new products. Sometimes, these few companies might even work together. This can lead to less competition and higher prices for customers.

What is an Oligopoly?

In economics, an oligopoly happens when a small number of sellers control a market or an industry. This means there are only a few big companies selling a certain product or service. Think of it like a club with very few members.

It's usually very difficult for new companies to enter these markets. This is because there are often high "barriers to entry." These barriers can be things like needing a lot of money to start, special technology, or strong brand loyalty to the existing big companies.

How Oligopolies Work

Since there are only a few companies, each one pays close attention to what the others are doing. If one company lowers its prices, the others might do the same to avoid losing customers. If one company introduces a new product, the others might try to create something similar.

Sometimes, the companies in an oligopoly might secretly agree to work together. This is called collusion. They might agree to keep prices high or to not compete too much with each other. This helps them earn more money, but it can be bad for customers because there's less choice and higher prices.

Examples of Oligopolies

You can find oligopolies in many parts of the world. Here are a few common examples:

Mobile Phone Networks

In many countries, only a handful of companies provide networks for mobile phones. These companies control the prices for accessing their networks. This is why using a mobile phone can sometimes be more expensive than using an old-fashioned landline phone.

Privatized Companies

Sometimes, governments used to own and run certain services, like train systems or utility companies. When these companies are sold to private businesses (a process called privatization), it can sometimes lead to an oligopoly. This happens if only a few private companies end up controlling the service. When private companies get control, they might charge more than a government-run service would.

Images for kids

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  This graph shows how companies in an oligopoly might react to price changes. If one company raises its price, others might not follow, so it loses customers. If it lowers its price, others might follow, leading to a price war.

See also

In Spanish: Oligopolio para niños