Define: Oligopoly

In legal terms, an oligopoly refers to a market structure dominated by a small number of large firms, which collectively have significant control over the supply and pricing of goods or services within a particular industry. Oligopolies can arise in various sectors, including telecommunications, banking, and manufacturing, among others. Due to the limited number of competitors in an oligopoly, firms may engage in behaviors such as price-fixing, collusion, or tacit coordination to maintain their market dominance and influence market outcomes. Oligopolistic behavior can raise legal concerns under antitrust laws, which aim to promote competition, prevent monopolistic practices, and protect consumers from unfair business practices. Antitrust authorities may investigate and take enforcement actions against oligopolistic behaviour that harms competition or leads to consumer harm. Oligopoly regulation seeks to ensure that markets remain competitive, efficient, and fair for consumers and businesses alike.

An oligopoly occurs when a certain product or service is controlled by only a few suppliers, creating very limited competition. Each player in this market is immediately affected when another changes its price or product offering.

An example of an oligopoly can often be seen in petrol companies. As one changes the price per litre or gallon, the others quickly react.

An oligopoly is different than a monopoly, in that an oligopoly has multiple participants, unlike a monopoly which only involves one.

In an oligopoly, the market is dominated by a small group of sellers who are also known as oligopolists. A duopoly is a certain form of oligopoly in which only two companies control the market.

The market concentration in an oligopoly is very high due to the presence of only a few suppliers. The barriers of entry are therefore constricted and very high. An oligopoly is characterized by a lack of price competition although market competition is generally high. Such a condition is however not beneficial for the consumers. All the companies in an oligopoly are aware of the actions of the other companies which may give rise to informal collusion or a price war. In the case of price cuts, the other companies tend to follow the market leader.

Concepts Related To Oligopolies

Following are some important concepts related to oligopoly:

• Antitrust
• Monopoly
• Cartel
• Oligopsony
• Duopoly
• Imperfect Competition
• Price Fixing

Antitrust

Antitrust laws are applicable for each and every industry of the world, irrespective of the level they are operating in. This includes the following industries:

• Manufacturing
• Distribution
• Transportation
• Marketing

Antitrust laws forbid any business practice that is restricted in nature and has a harmful impact on other business endeavours. Following are some examples of illegal practices that are barred as per antitrust laws:

• Price-fixing conspiracies
• Predatory acts
• Corporate mergers

Oligopolistic Industries

There are a number of oligopolistic industries in the United States of America. These include the tobacco, beer, aircraft, and oil industries. The television industry had been dominated in the 1970s by an oligopoly of three major companies such as ABC, NBC and CBS. However, the industry diversified in the last few decades of the century, although presently the concentration of media ownership lies in five companies: Time Warner, Viacom/CBS, Disney/ABC, News Corporation and NBC Universal.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 29th March, 2024.