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1 OLYGOPOLISTIC MARKET STRUCTURE What is an Olygopoly?

An Olygopoly situation arises when the market is concentrated among a few key players. Usually the top four firm concentration ratio is used in quantitative analysis.

Characteristics of an Oligopoly

Few firms -The most distinct feature of oligopolies is the small number of dominant firms in the industry High entry barriers -In the case of oligopolies barriers such as high fixed cost, intellectual property, customer loyalty, distributor agreements and use of complex technology are commonly prevalent to discourage new firms from entering the industry.. Ability to set prices -Most oligopolies are price setters due to their dominance in the market. Differentiation -Product differentiation is a key feature among oligopolistic firms. The organisation depends on its ability to differentiate its products from its oligopolistic rivals Non price competition - Oligopolistic firms compete based on their non price aspects such as customer focus, promotional activities, technical advancements, new product development. Interdependence - Usually oligopoly firms have a close relationship with each other.

CARTELS What are cartels? Since oligopolies are made up of a few large organizations, who have a major stake in the market, the actions of each firm can lead to a large impact on the

market. Hence these large firms collude together to form as a group to face the market. This leads to the oligopoly deciding on the price and output. This form of a collision is called a cartel. The best example of a cartel is OPEC ( Organization of Petroleum Exporting Countires). OPEC member hold regular meetings to decide on the amounts of petroleum to be produced by each memeber. Reasons for companies joining cartels. To increase market power To avoid price wars To minimise threat of new entrants Ability to maintain high prices Protects sales volume

However it should be noted that Cartels are banned in some countries such as the United States. In such cases secret agreements may be sorted. A notable example for such an illegal cartel was the airline cargo cartel between 11 major airlines which fixed a standard

COLLUSIVE OLIGOPOLIES

EXAMPLES FOR OLIGOPOLIES

SRI LANKA - The mobile network industry shows an oligopoly market due to the few large companies; Dialog, Mobitel, Etisalat, Hutch and Airtel.

UNITED KINGDOM Banking industry dominated by Barclays, Halifax, Lloyds TSB, HSBC and Natwest 74.4% of the grocery industry being shared by Tesco, Asda, Sainsburys and Morrisons

UNITED STATED