Oligopoly facts for kids

In economics, an oligopoly is a market form in which the market or industry is controlled by a small number of sellers. Usually, the market has high barriers to entry, which prevents new firms from entering the market or even be able to have a significant market share.

As there are only a few sellers in the market, each seller would take note of the actions made by one another, and thinks about how the other sellers will respond when making decisions As such, there is a possibility in which an oligopoly can come together to make a common decision that allows them to have less competition and charge higher prices for consumers.

Examples

In many countries, some country-held companies were privatized. Very often, this privatization lead to oligopolies. In many countries, there are only a handful of companies providing networks for mobile phones. They control the prices for accessing the network. That is why using a mobile phone is often much more expensive than using a land line one.

Trains run by private sectors are much costlier than those run by a government. As a government gives rights to private sectors to get a hold of some other sectors, they take advantage of it.

Images for kids

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  Above the kink, demand is relatively elastic because all other firms' prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and the kink point. This is a theoretical model proposed in 1947, which has failed to receive conclusive evidence for support.

See also

In Spanish: Oligopolio para niños