Oligopoly is, sometimes, also known as ‘competition among the few’ as there are few sellers in the market and every seller influences and is influenced by the behaviour of other firms. Smaller firms and startups may face significant challenges in entering and competing in oligopoly markets due to high barriers to entry and the dominance of existing players. However, innovative products or disruptive technologies can sometimes enable smaller firms to challenge the current market and carve out a niche for themselves. In an oligopoly market, pricing and output decisions are influenced not only by demand and cost considerations but also by the strategic interactions among firms. Firms must anticipate and react to the actions of their competitors, leading to complex pricing dynamics. An Oligopoly Market is a system of Markets where there are more than one Vendor (or firm) for trading of a particular good but there are very few Vendors.
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Telecom is an example that is often cited to exemplify Indian-style oligopoly. But there are many other industries behaving like oligopolies as well. The aviation sector’s pricing power, justified under the category of flexible market pricing based on demand-supply dynamics, stands out. It is feared that once the merger between Air India and Vistara is complete, it would intensify the aviation industry’s oligopolistic character. One of the main reasons for this is the fluctuating demand in the industry. The airline industry has seasonal fluctuations which severely affect demand like business cycles and holidays.
When we look at the overall prime time programming and content selection, we will observe that there is also considerable unity. The same is the case for an operating system for smartphones where the majority market share is captured by Android & iOS. These companies are coexisting without creating a threat to others. Oligopolistic markets, thus, give rise to kinked demand curves. The kink is present at the intersection of the two demand curves. Since firms under oligopoly can block new entrants, increase prices, and slow down innovation, they can harm consumers.
It will lead to loss of customers for the firm, which intended to raise the price. So, firms prefer non- price competition instead of price competition. Interdependence means that actions of one firm affect the actions of other firms. A firm considers the action and reaction of the rival firms while determining its price and output levels.
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It can be seen in their decisions of launching small cars, the sequence in which they raised the prices of cars which clarifies that these three players took a united and well thought of strategy. One may distinguish among the three based on prices, but based on features, all are distinct. The trend between the periods 1960 – late 1970 showed that Chrysler would announce the price rise first; then General Motors would announce the second price rise.
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- Toyota also has a stake in the Subaru Corporation, further creating overlap between the interests of the two companies.
- Merger agreements between major players have resulted in industry consolidation.
- Thus, this sector serves a perfect example for a closed oligopolistic market.
- Cement prices have seen a steep rise in recent months, on the back of rising costs of inputs such as power and fuel due to the ongoing Russia-Ukraine conflict.
In other words, a market for specific goods or services is divided among a small number of large producers. But formalisation of economic activities in India has also allowed the emergence of bigger businesses, which may form cartels and start charging higher prices. They can create entry barriers for efficient smaller and marginal players by hoarding or limiting access to scarce resources through their political clout. Unlike, monopoly market, the oligopoly market produces both kinds of goods, that is identical products and different products. Competitive oligopoly is the opposite of collusive oligopoly and basically a competitive strategy. This type of oligopoly occurs due to lack of understanding between the industries of the market.
Similarly, the automobile industry is also an example of oligopoly. Let us take the case of India, no doubt, there are several automobile industries. As the name suggests this is an organized structure of oligopoly. In this strategy, an association is formed to fix prices, quotas, and output. We will read about the definition of an oligopoly market, its characteristics and consider a few real-life examples. Oligopolies tend to arise in an industry that has a small number of influential players, none of which can effectively push out the others.
Industries With Potential Oligopolies
Thus, Indian policymakers should not hesitate to prioritise the creation of such a business environment. Group behaviour here means that the firms in this market behave like they are one single firm even though they retain their interdependence on an individual basis. Price rigidity is a situation in which the price of the product tends to stay the same or fixed irrespective of the changes in supply and demand of those products. An Oligopoly Market is one such type of market where a small number of large firms dominate the industry.
To know more about the other examples oligopoly examples in india of the Oligopoly Market, visit Vedantu’s website or app where you can get free resources on this topic and much more. TSMC, for instance, creates chips for several large tech corporations, including Nvidia and Apple. It’s a key player in the contract semiconductor manufacturing industry.
Customers, in turn, have to agree to pay whatever businesses ask for as they have no other place or seller to go to. Oligopoly examples include companies that enjoy oligopoly in the market. In this type of market structure, businesses are present in small number and dominate the market, restricting new entries into the market. So in order to stay relevant, they have to stay a step ahead and always be active.
There are six major players in the industry who make up 98.3% of the market share in terms of passengers carried. Figure 1 shows a pie chart of the major players that make up the industry. There are high barriers to entry and exit and large fixed costs involved. Indigo is by far the largest player in the industry as it accounts for 55% of the market share in terms of passengers. Spicejet, Air India and Go Air make up 10%, 9.5% and 9.7% respectively. Despite controlling such a large part of the market, all of these firms have faced heavy losses in recent years.